Performance Perspectives Blog

Before you buy, verify! Or, at least get an independent check of a firm’s GIPS compliance claim

by | Nov 15, 2016

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So, you’re thinking of acquiring another asset manager; or, perhaps to merge with one. The other firm claims compliance with the Global Investment Performance Standards (GIPS®). Do you think it’s worthwhile to have someone “double-check” their GIPS compliance claim?

Some questions (& answers) you might have about verifying a GIPS compliance claim

  • Am I referring to a “full blown” GIPS verification?
    • No, not at all. It’s more of a “kick the tires” review.
  • What’s the clearest example where a check is needed?
    • If the firm you’re thinking of buying or merging with claims compliance but hasn’t been verified. The likelihood of the firm actually being compliant borders around 0.00 percent. Why? Because the Standards are complex and often require interpretation. There are just too many ways firms can make mistakes. Verification is important to provide a greater assurance of compliance.
  • What if the firm has already been verified?
    • It still might be worth another look. We’ve had occasions where one of our verification clients was planning to merge  with a firm that had been claiming compliance for quite some time; and, they’d been verified. But, our client still felt a look was worth their investment. That was a good idea, as we found a number of discrepancies. They still moved forward with the acquisition, but at least understood the “gap” that existed, so steps could be taken to address them.
  • How long will it take?
    • I’d say one-to-three days, depending on the size of the firm. It will be less time than would be needed for a verification.
  • How can we make such a confirmation in such a short period?
    • We look at the “high points” of compliance; the major areas; the things we typically find problems with; the more commonly overlooked aspects of GIPS; the more confusing parts of the Standards.
    • While we may not be able to say “the firm is compliant,” we definitely would be able to tell you if they’re not.
  • Is this a common activity?
    • Perhaps not “common,” but probably should be. We think a lot of managers who are making acquisitions simply don’t think about this, but they should. It should be part of the overall “due diligence” effort.
    • We’ve done these reviews for a few of our verification clients, as well as one or two firms who were not our verification client.
    • We’ve also seen where a client has made an acquisition without going through this check, only to discover some huge gaps that required quite an investment of time and money to address.
  • Will we check the integrity of the return?
    • We can, definitely. This typically isn’t asked for: rather, the focus has been on “check to see that they comply.” But occasionally, we’re asked to check the returns, too.
  • But why bother?
    • Recall that when there’s a merger or acquisition involving at least one firm claiming compliance, you have one year to bring the non-compliant firm into compliance.
    • A claim is different than compliance. And so, if you make the acquisition only to find afterwards that there are gaps, that one year might come and go quite quickly. It’s better to know what you’ll be facing sooner rather than later.
  • What if The Spaulding Group isn’t our verifier?
    • Well, we believe that such an investment’s important. While we are not aware of any other verifier who does this sort of work, we do, and we’re happy to do it for you.
    • We’ve done it for other firms who weren’t our verification client.
    • Our verifications tend to be highly efficient, given the level of expertise of our team of verifiers (we only have senior level, where our competitors typically have a fair amount of junior). Consequently, these checks tend to be very efficient, too, but without sacrificing the in depth nature required.

How to get the firm’s GIPS compliance claim checked

If this makes sense to you, please contact Chris Spaulding (CSpaulding@SpauldingGrp.com), Steve Sobhi (SSobhi@SpauldingGrp.com), or Patrick Fowler (PFowler@SpauldingGrp.com), or simply call our offices. We’ll be happy to review the process with you.

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