Chapter

6

What are our Thoughts on
These Changes?

We won’t go over all of our thoughts on what is being proposed, as our comment letter is available on line7. Rather, we’ll touch on some of the more significant items.

What are our Thoughts on These Changes

Portability

We believe that if a firm acquires (or is acquired by) a non-compliant firm, they should be required to truly bring that entity into compliance, if they are to be part of the same “firm definition.” To allow short-hand, prospective-only compliance would be, in a sense, an insult to those firms that have spent the time and resources to collect the records, do the calculations, conduct the analysis, to derive the minimum five years (or since inception) records. If the non-compliant firm is unable to achieve compliance within a year, then they should be excluded from the GIPS “firm definition” until either they are able to go back in time, or build up the five years of compliant history on a prospective basis.


6 See for https://spauldinggrp.com/asset-owner-performance-roundtable/ more information.
7 NEED URL; if not posted in time, provide email address for them to get a copy

Carve-outs

We like this change. We believe that it’s a compromise with those who don’t see the benefit of carve-outs or who question the validity of the returns that result from allocating cash.

Timeliness to revise presentations

The EC recommends that firms be required to revise presentations within six months of year-end. While we agree that a time limit should be introduced, we believe this is a bit aggressive and prefer 12 months.

Mutual Fund List

The EC is proposing that firms be required to provide a list of only those funds that are appropriate to the specific prospect.

We believe this can be very costly to comply with, especially for large fund companies that serve many different markets.

Policy on verifier independence

Firms will be required to have a policy for determining that the verifier is independent of the firm.


This was actually included in the recent draft GS for Verifier Independence, but comments weren’t solicited. We opposed in then and oppose it being a requirement. Rather, we believe it should be a recommendation.

Criteria to Require Money-weighting

We believe that the only criterion to require the use of money-weighting is the control of cash flows. That is, if the manager controls external cash flows, then they should be required to report money-weighted returns.

We believe that the other criteria should not be imposed. This is consistent with most of the comments that were made in response to the GIPS 20/20 Consultation Paper.

Error Correction

The current Error Correction Guidance Statement only requires firms to maintain a disclosure of material errors in their presentations if they are not able to provide corrected materials to clients and active prospects, who saw the prior version. The EC proposes that this disclosure be required regardless, and for a minimum of 12 months.

We believe that this is totally unnecessary: why would a party who did not receive a version with the error care to know that there had been an error? 

Subscription Lines of Credit

We applaud the proposed requirement for managers who use subscription lines of credit to report returns both with and without the effect of this borrowing.

Estimated Transaction Costs

We like the ability to estimate transaction costs. We aren’t quite sure how to do this, but are giving it some thought. In addition, we have asked the EC to provide some proposed ways to do this.

Composite Creation vs. Inception Date

The EC proposes to change the currently required composite creation date to a recommendation, and introduce the requirement that composite inception date be shown.

We feel that creation date has value, as it lets the reader know how old the composite actually is. Inception date has always been an option, though we rarely see it shown.

We suggest that creation date continue to be required, but that inception date be a recommended disclosure.

Firm and Composite Assets, only

The EC proposes to change the currently required composite creation date to a recommendation, and introduce the requirement that composite inception date be shown.

We feel that creation date has value, as it lets the reader know how old the composite actually is. Inception date has always been an option, though we rarely see it shown.

We suggest that creation date continue to be required, but that inception date be a recommended disclosure.

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