Performance Perspectives Blog

After after-tax goes away … what’s a body to do?

by | Feb 9, 2010

You may have heard that the after-tax rules that are in the current version of the Global Investment Performance Standards (GIPS(R)) will be no more, as-of 1 January 2011. And so, what do you do if (a) your firm currently provides after-tax composites that conform to these rules or (b) in the future, you wish to provide after-tax returns?

The United States Investment Performance Committee (USIPC; the US country sponsor for GIPS) has developed guidance to assist you. Even though it’s fairly brief, I’ll summarize here.

First, the USIPC encourages U.S. firms to adopt (or continue to use) the rules as they exist today. We believe they represent the best way to portray your after-tax returns to prospects. The USIPC will be responsible for maintaining them going forward.

Second, after 1 January 2011, your after-tax composites will be supplemental, since GIPS will no longer have after-tax rules. Therefore, you will have to follow the supplemental guidance.

Third, you can adopt a different methodology to derive your after-tax returns (again, we recommend you stick with what is in GIPS today and what the USIPC will provide going forward), if you wish, as the USIPC cannot mandate their use. However, whether you use the USIPC (currently GIPS) rules or some other method, you should document it and be prepared to provide the details, if necessary.

And finally, if you are using the after-tax rules as they exist today, you cannot switch to another method until 1 January 2011, unless you fully adopt the rest of GIPS 2010 (see my earlier entries for further details).

Hope this helps!