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Global Investment Performance Standards (GIPS ® ). The Global Passport for Asset Managers. Presentation to: Asian Security Analysts Federation 8 November 2006 Seoul, South Korea. Yoh Kuwabara. GIPS Executive Committee Verification/Practitioner Subcommittee Chair

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global investment performance standards gips

Global Investment Performance Standards (GIPS®)

The Global Passport for Asset Managers

Presentation to:

Asian Security Analysts Federation

8 November 2006

Seoul, South Korea

Yoh Kuwabara

GIPS Executive Committee

Verification/Practitioner Subcommittee Chair

Director, Misuzu Audit Corporation

gips presentation
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A
gips objectives

Representation of performance

Ethical framework

Accurate and consistent data

Global comparability

Uniformity in reporting

Full disclosure

Fair presentation

GIPS Objectives
1 background
1. Background
  • Fraudulent presentation of investment performance
  • Cherry picking
  • ‘Apple to Orange’ Comparison
  • Insufficient, misleading disclosure

‘They had been able before we hired them!?’

gips presentation5
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A
2 history
2. History
  • Pre-GIPS Era
  • GIPS1999
  • Introducing CVG/TG
  • GIPS2005
  • Status Quo – September 2006
2 a pre gips era
2-A) Pre-GIPS Era
  • 1987:‘Performance Presentation Standards’ established for USA and Canada—1993:Revised to ‘AIMR-PPS’
  • Several countries followed suit

1992: ‘The Pension Fund Investment Performance Code’ (UK)

1997: SPPS (Switzerland)

1998: DVFA Standards (Germany)

1998: AIPMPS (Australia)

1998: VBA-PPS (Netherlands)

1999: SAAJ-IPS (Japan)

2 b gips1999
2-B) GIPS1999
  • 1995: EFFAS Permanent Commission on Performance Measurement advocated need for a global standard
  • 1995:AIMR-PPS Global Implementation Committee established
  • 1998: Exposure Draft of GIPS released for public comment
  • 1999: GIPS finalized (February)
2 c introducing cvg tg
2-C) Introducing CVG/TG
  • 2000: ‘GIPS Adoption at Country Level’ introduced IPC endorsement of CVG and TG
  • Countries introduced CVGs: Australia, Ireland, Italy, Japan, South Africa, Switzerland, UK, USA/Canada

CVG: Country Version of GIPS. Minimum addition to GIPS based on country specific laws/regulations and/or established practice is allowed

TG: Translation of GIPS. No addition, no modification allowed except for a ‘wrapper’

2 d gips2005
2-D) GIPS2005

Effective: 1 January 2006

  • Some ‘Recommendations’ upgraded to ‘Requirements’
  • Added new provisions for Fees, Real Estate and Private Equity
  • Added as new provisions some essence of Guidance Statements
  • Added some global ‘best practices’
  • Proposed ‘Convergence to GIPS of CVGs’
2 e status quo sept 06
2-E) Status Quo – Sept. ‘06
  • 27 countries and/or regions adopted GIPS

*: Republic of Palau, Republic of the Marshall Islands, Federated States of Micronesia, Commonwealth of the Northern Marianas Islands, Territory of Guam

gips presentation12
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A
3 contents
3. Contents
  • Concept
  • GIPS Provisions
  • Key Requirements
  • Guidance Statements
  • Verification
3 a concept
3-A) Concept
  • Self-regulatory nature
  • Vision:
  • Fundamental principle: ‘Fair representation and full disclosure

‘A global investment performance standard leads to readily accepted presentations of investment performance that (1) present performance results that are readily comparable among investment management firms without regard to geographical location and (2) facilitate dialogue between investment managers and their prospective clients about the critical issues of how investment management firm achieved performance results and determines future investment strategies.’ (GIPS I. 5.)

3 b gips provisions
3-B) GIPS Provisions

Provisions:

0. Fundamentals of Compliance

1. Input Data

2. Calculation Methodology

3. Composite Construction

4. Disclosures

5. Presentation and Reporting

6. Rea Estate

7. Private Equity

Appendices:

A: Sample GIPS-Compliant Presentation

B: Sample List and Description of Composites

C: GIPS Advertising Guidelines

D: Private Equity Valuation Principles

E: GIPS Glossary

3 c key requirements
3-C) Key Requirements
  • ‘Firmwide’ compliance(3.A.1)
  • ‘Composite’ performance(2.A.3)
  • Use of Time-weighted Rate of Return(2.A.2)
  • No simulated and/or back-tested return(3.A.8)
  • Minimum 5 years of compliant performance data(5.A.1.a)
  • All supporting data must be kept(1.A.1)
  • Document policies and procedures to establish and maintain compliance(0.A.6)
3 c key requirements cont d
3-C) Key Requirements-Cont’d
  • Important policies must be defined by firms
  • Definition of the entity to claim compliance (FIRM)
  • Definition of ‘investment discretion’
  • Definition of composites
3 d guidance statements
3-D) Guidance Statements

*:Awaiting finalization

3 e verification
3-E) Verification
  • A review by an independent third-party ‘verifier’ of investment management firm’s performance measurement processes and procedures. Verification tests:
  • ‘Not currently required but strongly encouraged (Section III)
  • Whether the firm has complied with all the composite construction requirements of the GIPS Standards on a firm-wide basis
  • Whether the firm’s processes and procedures are designed to calculate and present performance results in compliance with the GIPS Standards.
gips presentation20
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A
4 gips organization
4. GIPS Organization
  • Overview
  • GIPS Executive Committee
  • GIPS Country Sponsors
  • GIPS Council
  • RIPS
  • Subcommittees
  • Working Group
  • GIPS Secretariat
4 b gips executive committee
4-B) GIPS Executive Committee
  • Supreme decision-making body for GIPS matters
  • Comprising 9 members w/voting rights:
  • Can create/amend GIPS Provision/Guidance Statements without CFA Institute Board approval
  • Annual reporting to CFA Institute Board Required

+ EC Director (CFA Centre Director of IPS)

4 c gips country sponsors
4-C) GIPS Country Sponsors
  • Should sign Agreement with CFA Institute and EC
  • Should send representatives to RIPS and Council
  • Roles and responsibilities include:
  • Promoting GIPS within their countries
  • Being knowledgeable about and kept abreast of their domestic market and industry
  • Nominating people for Subcommittees
  • Submitting comments on exposure draft
4 d gips council
4-D) GIPS Council
  • Established under GIPS EC
  • Comprising all GIPS Country Sponsors
  • Has subdivisions among 3 regions (RIPS: Americas, Asia-Pac, EMEA)
  • Council Chair has 1 voting right at the EC
  • Along with 3 RIPS Chairs, Country Sponsor representatives occupy 4 seats at the 9 member GIPS EC
4 e rips
4-E) RIPS
  • ‘Regional Investment Performance Subcommittee’
  • Established under GIPS Council, but Chair retains 1 voting right at GIPS EC
  • 1 Each for Americas, Asia-Pac and EMEA
  • May have subcommittees and/or working groups underneath
4 f subcommittees
4-F) Subcommittees
  • Major ‘stakeholders’ alongside Country Sponsors
  • Interpretations Subcommittee
  • Other technical subcommittees on specific topic/subject (e.g., Real Estate, Private Equity, Hedge Fund)-currently not existent
  • Investor/Consultants Subcommittee
  • Investment Manager Subcommittee
  • Verification/Practitioner Subcommittee
  • Promotion and Awareness Subcommittee
4 g working groups
4-G) Working Groups
  • Intellectual Property Working Group
  • Process Working Group
  • Communication Task Force
4 h gips secretariat
4-H) GIPS Secretariat
  • Staff at CFA Centre
  • Support activities of EC(1), Council(1), RIPS(3), Subcommittees(5) and Working Groups(3)
  • Guardian of GIPS documents
  • Website Administrator
gips presentation30
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A
5 initiatives
5. Initiatives
  • Promote GIPS around the world
  • Upgrade GIPS to incorporate global best practices
gips presentation32
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A
6 future plan
6. Future Plan
  • GIPS2010 – next overall revision and upgrade of GIPS
  • Subject of discussion may include:

Mandating verification

New Provisions for Hedge Fund

New Provisions on after-tax performance

gips presentation34
GIPS Presentation
  • Background
  • History
  • Contents
  • Organization
  • Initiatives
  • Future Plan
  • Q & A