Complying with the Global Investment Performance Standards (GIPS)

The first and only comprehensive explanation of GIPS, including how to comply with and implement them

While the CFA Institute has published Global Investment Performance Standards (GIPS) for years, there has never been a serious discussion of their implementation and best use.

In this new book, that void is filled, and you'll quickly discover how to calculate, present, and interpret investment performance conforming to standards that are currently used in over thirty countries worldwide. Covering both the mathematics of relevant investment statistics and the policies and procedures for achieving and maintaining compliance, this book is a comprehensive guide to successfully using GIPS standards in today's turbulent investment environment.

• Chapters include information on GIPS fundamentals, performance composites, risk and dispersion measurement, and much more
• Examples are provided throughout, and supplemental formulas make the book usable as a reference
• Provides the detailed knowledge currently needed by a large group of investment professionals

If you're in the field of finance, Complying with the Global Investment Performance Standards (GIPS) is a book you need to read.

About the Authors xi

Preface xiii

Acknowledgments xv

Introduction xvii

PART ONE: Explanation of the GIPS Standards

CHAPTER 1. Fundamentals of Compliance 3

Scope of the GIPS Standards 3

History of the GIPS Standards 4

Governance of the GIPS Standards 5

Organization of the GIPS Standards 7

Fundamentals of Compliance 8

Summary 12

CHAPTER 2. Defining the Firm and Composites 13

Defining the Firm 13

Defining Composites 23

Summary 50

PART TWO: The Methodology for Calculating Returns

CHAPTER 3. Portfolio Return Measurement 53

Single Period Rate of Return 54

Time Value of Money 63

Performance of the Investor: Money Weighted Returns 67

Internal Rate of Return 71

Performance of the Investment Manager: Time Weighted Returns 77

Portfolio Return Calculations for the GIPS Standards 82

Summary 90

CHAPTER 4. Composite Return Measurement 91

Composite Constituents 91

Composite Returns 93

Single Period Composite Return Considerations 97

Multi-period Composite Returns 100

Summary 107

CHAPTER 5. Dispersion and Risk Measurement 109

Internal Dispersion 109

Equal Weighted Dispersion 111

Asset Weighted Dispersion 114

Risk 119

Summary 137

PART THREE: Reporting and Maintaining Compliance with the GIPS Standards

CHAPTER 6. Disclosing and Advertising Composite Performance 141

Required Numerical Information 141

Required Disclosures 149

Length of Time for Disclosures 168

Presentation and Disclosure Recommendations 168

Supplemental Information 170

GIPS Advertising Guidelines 171

Summary 177

CHAPTER 7. Wrap-Fee/SMA, Private Equity, and Real Estate 179

Wrap-Fee/Separately Managed Accounts 180

Private Equity 188

Real Estate 198

Summary 203

CHAPTER 8. Maintaining Compliance with the GIPS Standards 205

Organization and Oversight 205

Return Calculation 211

Error Correction 215

Managing Composites and Presentations 220

Summary 226

CHAPTER 9. Verification 227

Verification 228

Performance Examinations 229

Verification Considerations 230

Required Verification Procedures 234

The Verifier’s Report 241

Preparing for Verification 241

Summary 245

Index 247

Bruce J. Feibel is Managing Director of Investment Manager Products at BNY Mellon. Formerly, Mr. Feibel was Chief Strategy Officer for Eagle Investment Systems, a BNY Mellon company. Prior to this he was a principal at State Street Global Advisors. He is also the author of the book Investment Performance Measurement, published by Wiley. He earned his B.S. in accounting from the University of Florida. Feibel is a CFA charterholder, a member of the GIPS Risk Standards Working Group, and a past member of the CFA Institute Investment Performance Council.

Karyn D. Vincent is the founder of Vincent Performance Services LLC, a provider of GIPS verification and consulting services. Prior to this, she was a partner at PricewaterhouseCoopers and was responsible for the firm's verification practice globally. Vincent currently chairs the GIPS Interpretations Subcommittee and is a member of the GIPS Executive Committee. Previously she chaired the GIPS Verification Subcommittee. Vincent earned her B.S. in accounting from the University of Massachusetts Dartmouth, and is a CFA charterholder and a CIPM certificant.

The investment management industry has global standards for the calculation and presentation of investment performance to prospective investors. These are the Global Investment Performance Standards (GIPS), which were created and are administered by CFA Institute.

Expanding upon information associated with the GIPS standards published by CFA Institute, this reliable resource provides practical guidance for today's financial professional—from money managers or firms engaged in attracting new clients to institutional investors looking to hire investment managers that align with their goals.

Engaging and informative, this book offers valuable insights on achieving and maintaining compliance with the GIPS standards as well as a detailed explanation of the rationale behind the numbers. Complying with the Global Investment Performance Standards (GIPS) is divided into three different parts:

Part I: Explains the GIPS standards and how to comply with them by creating composites representing the performance of a firm's strategies

Part II: Addresses the methodology for calculating returns used to quantify a manager's historical performance and examines the statistics that quantify the risks taken to achieve those returns

Part III: Discusses the essential issues associated with reporting performance and reveals what it takes to achieve and maintain compliance with the GIPS standards

Along the way, the book provides worked examples illustrating particular techniques for analyzing performance, and skillfully describes the most commonly used methods for deriving returns used for marketing purposes.

The GIPS standards have changed today's financial landscape. And while past performance cannot guarantee future results, the information conveyed by the GIPS standards has helped prospective investors and investment managers form more informed relationships. Nobody understands this better than authors Bruce Feibel and Karyn Vincent, both long-standing volunteers with CFA Institute's GIPS committees, and now, in Complying with the Global Investment Performance Standards (GIPS) they put this dynamic discipline in perspective.

Complying with the Global Investment Performance Standards (GIPS)

While CFA Institute has published the Global Investment Performance Standards (GIPS) for years, there has never been an in-depth discussion of their implementation.

With this new book, authors Bruce Feibel and Karyn Vincent, both of whom have earned global reputations as authorities on performance measurement, fill that void by showing you how to calculate, present, and interpret investment performance in compliance with these standards, which are currently implemented in over thirty countries worldwide.

Covering both the mathematics of relevant investment statistics and the policies and procedures for achieving and maintaining compliance, Complying with the Global Investment Performance Standards (GIPS) is a comprehensive guide to successfully using the GIPS standards in today's competitive environment. Divided into three engaging parts, this reliable resource contains:

• Information on GIPS fundamentals, performance composites, and risk and dispersion measurement

• Insights on presenting performance for nontraditional asset classes and investment vehicles

• Advice on how both money managers and their clients can benefit from independent verification

• Illustrated examples and supplemental formulas that make the book a usable reference source

• And much more

If you're in the field of finance—as an institutional investor or as a manager that serves them—Complying with the Global Investment Performance Standards (GIPS) is a book you need to read.