Can OCIOs Be GIPS Compliant?
Yes! OCIOs can absolutely be GIPS compliant. We have helped OCIOs achieve GIPS compliance, and conduct verification for a number of OCIOs.
While some believe OCIOs cannot claim compliance, this is not the case.
In fact, OCIOs can be thought of as just another segment of the investment marketplace, where the managers compete for business and will want to showcase their past performance.
When we think of the main challenges to achieving GIPS compliance for all firms, we think of these steps to compliance:
- Defining the firm for GIPS compliance purposes
- Creating a composite structure for the creation and maintenance of composites that are meaningful to the firm’s marketing efforts now and hopefully years from now
- Defining discretion
- Creating and documenting all the policies and procedures to become and maintain GIPS compliance
- Creating the compliant presentations and list of composite descriptions
- Possibly selecting a performance and composite system.
OCIOs have all these considerations, with some additional challenges that may appear unique but, in reality, are not. But this isn’t unique to OCIOs, as many traditional asset managers face the same issue, which is not insurmountable. From our experience, OCIOs have customized strategies for clients, so defining discretion and composite construction may be a little more challenging.
GIPS requires all actual, fee-paying, discretionary accounts to be in at least one composite. Since they customize strategies for each client, does this mean that each will get its own composite? For example, if you have 50 clients with customized strategies, does that mean you will have 50 composites?
No, because that wouldn’t be very meaningful for the firm. By doing a thorough review of accounts and working through the firm’s marketing efforts and strategies, you will actually come up with a definitive view of strategies and end up with meaningful composites that include more than one account.
This may mean a bit more dispersion, but that’s fine as long as the composites are representative of the firm’s products.
And, there may be accounts that would be considered non-discretionary for an OCIO (e.g., the firm has to get written approval from the client before executing any trade, legacy assets are not allowed to be sold until directed or approved by the client, etc), just as with any other asset manager.
Here are a few other challenges OCIO firms face that maybe other firms do not…
OCIO’s invest in pretty much every asset class, so valuation is more complex, relatively speaking. Perhaps showing asset class performance may be meaningful for prospective clients. Also, based on what the firm invests in, net returns may be net of more than just transaction costs and management fees (e.g. administrative fees, underlying fund/ETF fees). Finally, composite benchmarks may be a bit more challenging.
But, all of these challenges can be addressed and overcome!
Existing guidance in the GIPS standards and some of the guidance in the 2020 GIPS standards disclosure document, support a few different ways to think about and tackle these challenges.
So, if you are an OCIO firm, you definitely can achieve compliance, and we believe you should…
We’ve even been told by OCIO investment consultants that they are starting to require GIPS compliance.
So, where should you start?
The ideal first step for any firm, including OCIOs looking to become compliant, is with our one-day proprietary GIPS Planning Session.
We will further educate you on the Standards and how they apply to your firm; address your questions, concerns, and issues; assess where your firm stands today relative to compliance (a gap analysis); and develop a plan or a roadmap to get you to compliance as efficiently (and painlessly) as possible.
Plus, you’ll have access to one or more of our senior verification professionals along the way, to address questions and provide guidance as you move forward to compliance. And even after you’ve achieved compliance and have been verified, we will continue to be available to address any questions or issues that may arise.
So, if you are thinking about compliance, then complete our very short GIPS Verification Questionnaire. We’ll be in touch to learn about your firm and your goals. We will provide you with a detailed proposal.
And just for completing the form, we will send you the link to a special webinar we did with Strategic Investment Group on the topic of GIPS compliance for OCIOs.