A client recently asked us a question regarding GIPS(R) (Global Investment Performance Standards) which we have heard in the past, and so I decided to post it here and offer a response.

Should the dispersion which is shown on a GIPS presentation be based on net or gross of fee returns?

Excellent question, I believe. The Standards, to my knowledge, don’t address this nor have I been able to find any Q&As on it. And so I would say that it’s “open to interpretation.” In reality, it really shouldn’t matter that much, assuming that the fee percentage is relatively consistent across the period, we wouldn’t expect to see much in the way of a difference between the dispersion for gross or net-of-fee returns. The differences would be de minimis.

Must you disclose across which return it’s measured? There is no requirement to do this, though it would probably be advisable. Since you probably have a statement in your disclosures which reads something like “Dispersion is calculated using standard deviation,” to amend it with “Dispersion of gross-of-fee returns is calculated …” wouldn’t be difficult.

What would I recommend the dispersion be relative to? Gross-of-fee returns. I place little benefit in net-of-fee returns as they don’t provide the same value to the reader as the gross returns (because most firms have a mix of fees in place, so the net return is difficult to decipher; one can always take the gross return and adjust it by the fee they expect to pay to arrive at the approximate net return they would have had). But again, it’s up to you to decide.