GIPS
What to expect from GIPS 2020?
Why is a Global Investment Performance Standard needed?
This is not a new issue. It arose at the end of the last century as a result of the accelerating globalisation of financial markets and the financial management industry. Competition is becoming international and investors are facing a considerably wider range of investment products.
However, given the different practices and regulations, the comparison of fund management and performance calculation techniques is complicated. On the one hand, competition between investment firms is unbalanced because some countries have stronger regulations than others. And on the other hand, investors have to select funds without being able to compare them transparently.
In 1995, the CFA Institute began the development of a standardised approach for presenting the performance of mandates and dedicated funds to ensure :
- Transparent information for investors
- Fair competition for asset managers
An international standard for the presentation of performance
The first version of the GIPS® standards, in 1999, proposed a minimum standardisation of investment performance with local variations to facilitate adherence and adoption by various stakeholders.
The second edition, in 2005, has broaden the application of the GIPS standard and has developed a single global standard for calculating and presenting investment performance, eliminating local variations.
The 2010 edition of the GIPS® standards, ensured a direct and unequivocal comparison of fund performance, based on the following key concepts:
- The GIPS® standards must be applied on a firm-wide basis
- Portfolios must be valued in accordance with the definition of fair value
- Firms must calculate time-weighted rates of return adjusted for external cash flows
- All actual, fee-paying, discretionary portfolios must be included in at least one composite
- The firm must disclose its compliance with the GIPS® standards
An evolving standard adapting to market needs and realities
To ensure its relevance, the standard is an evolving tool. Indeed, in the asset management industry, needs and realities are changing. The standard adapts: provisions that are no longer necessary are removed; and new requirements and recommendations that promote best practices are added.
Over the past 10 years, the industry of portfolio management has changed, so the GIPS® standards have been completely revised by the CFA Institute. Beyond the objectives of adapting to new market needs and realities, this version also aims to :
- harmoniously integrate the different rules and recommendations issued since the last version of the standard in 2010
- facilitate their adoption by private management companies and alternative investment funds (private equity / real estate...)
- facilitate the reading of the standards by publishing them in 3 separate guides: for asset managers ("firms"), for institutional investors ("asset owners") and for auditors
GIPS 2020, what are the new rules?
In June 2019, the CFA Institute published the latest version of the GIPS® standards and announced that they would come into effect in January 2020. This means that GIPS reports including performance ending on or after December 31, 2020 must follow the new standards.
GIPS 2020 brings first of all, some changes in terminology:
- "transaction costs" replaces "trading costs"
- "wrap fee portfolios" replaces "wrap fees/separately managed accounts"
- "GIPS reports" replaces "Compliant presentations"
But above all brings the following major changes for firms:
- introduction of Pooled Funds - for funds that are not intended to be mandates or dedicated funds and therefore no longer need to be included in a composite, each type will have its own GIPS report
- reintroduction of the carve-out to offer more flexibility in terms of cash management
- possibility of applying an estimate of transaction costs rather than actual costs
- possibility to use Money-Weighted Returns (MWR) rather than Time Weighted Returns (TWR)
Solution
Active for 20 years in the management of GIPS reports, AMINDIS offers its AMDIS software.
2 alternatives to produce GIPS reports:
- Integrated management allows to start from the transaction-based content of investment portfolios and automatically feeds the GIPS module with the different performance levels and other relevant indicators.
- Non-integrated management enables the GIPS module to automate the management of GIPS quickly and at a lower cost by integrating the performance and valuation of the various portfolios and funds from an external source.
The AMDIS solution offers a unique and scalable platform to produce GIPS reports (performance and disclosure) as well as all the analytical data useful to effectively manage its funds: Performance and Risk Measurement, ESG Analysis, Performance Attribution, Risk and ESG ...
The AMDIS solution, based on its secure, customised and intelligent web portal, makes it possible to make available to sellers :
- GIPS reports
- a self-service analytical measurement service
- a simulation tool for responding to calls for tenders