What are the GIPS® standards?
The Global Investment Performance Standards (GIPS) are an ethical set of standardized, industry-wide principles that provide investment firms with guidance on how to report investment performance to prospective clients. The Standards allow firms to compete globally, and provide investors with the ability to make comparisons between investment firms.
What is GIPS Verification?
GIPS verification is an independent third party review of an investment management firm’s performance processes and procedures. During this review the verifier will:
- Review and test the investment manager’s GIPS policies and procedures.
- Review composite presentations to ensure that all of the required data and disclosures are presented. This will also help to identify areas to address in more detail.
- Review annual returns and composite statistics on GIPS presentations.
- Check calculations.
Items the verifier will want to see include:
- A list of open and closed accounts for the period under review.
- Composite membership reports.
- A list of accounts that are excluded from composites and the reason(s) why.
- ADV Parts I and II.
- Other items depending on what is found during the review.
Why should my firm become GIPS compliant and verified? At one time, firms had an advantage by complying with the standards; today it’s a disadvantage not to comply. Compliance is a de facto requirement in the institutional marketplace. The same can be said of verifications: our research shows that most compliant firms have them done. In addition to responding to a marketing need, verification will provide a firm claiming compliance with added confidence that they are, in fact, compliant.
In addition, other areas of the industry, such as hedge funds, private equity, and real estate are showing increased interest in GIPS compliance.