The Myth of GIPS- Money-weighted Returns for Client Performance Reporting
In absence of a performance reporting standard for investors, GIPS standards are often applied to client performance reporting. More often than not, this perceived need to follow GIPS standards provides investors with performance reporting better suited for money managers.
Trevor Davies, CFA, CIPM, BNY Mellon
David Spaulding, CIPM, The Spaulding Group
The Myth of GIPS - Money-Weighted Returns for Client Performance Reporting
A common refrain echoes through the financial industry: “We have to use time-weighted returns in client reports on discretionary accounts to be compliant with Global Investment Performance Standards (GIPS).” Unfortunately, calculating time-weighted performance does not, on its own, make a firm GIPS compliant. There is often an attempt to apply GIPS standards to all investor business models, but this should not be the main consideration. GIPS standards were designed to provide uniformity - helping asset managers present historical investment performance to prospective investors.