GIPS Compliance Fundamentals

• GIPS Requirement 1.A.1 - GIPS Firms

The GIPS standards must be applied on a firm-wide basis. Compliance must be met on a firm-wide basis and cannot be met on a composite, pooled fund, or portfolio basis.  

Comment: Firms cannot claim to be in compliance with regards to only certain asset classes, investment strategies, products or composites that fall within the definition of the Firm. GIPS compliance cannot be claimed for some of the investment firms products, nor for specific composites or portfolios. The term ‘GIPS composite’ is commonly used, however, all composites for your firm would be ‘GIPS composite's’.

The firm must include the performance record of actual wrap fee portfolios in appropriate composites in accordance with the firm’s established GIPS inclusion policies. Once established, these composites (containing actual wrap fee portfolios) must be used when presenting GIPS composite reports to wrap fee prospective clients.

• GIPS Requirement 1.A.3 - GIPS Minimum Years

To initially claim compliance with the GIPS standards, the firm must attain compliance for a minimum of 5 years or for the period since the firm inception if the firm has been in existence for less than 5 years. If the firm or composite has been around less than 5 years, then the firm must present performance since the firm's inception OR the composite inception date. Each subsequent year after the initial 5 years, the additional years must be added until a minimum of 10 years of data is achieved.

Comment: If during the Initial Examination you are going back more than 10 years, you should add in the additional Calendar Years to the initial compliant presentation.

• GIPS Requirement 1.A.7 - False or Misleading Performance

Firms cannot present performance or performance-related information that is false or misleading.

Comment: This requirement applies to all performance or performance-related information on a firm-wide basis and is not limited to those materials that reference the GIPS standards. The firm may provide any performance related information on a firm-wide basis and is not limited to those materials that reference the GIPS standards. The firm may provide any performance or performance-related information that is specifically requested by a prospective client or prospective investor for use in a one-on-one presentation.

The Marketing section of the Policy Manual should contain a reference on how the firm esures that no performance or performance-related information that is false or misleading is included in any marketing materials used through the firm.

Firms must establish controls, policies and procedures to ensure that performance and performance-related information (ie all Marketing materials) does not include false or misleading information.

• GIPS Requirement 1.A.8 - Partial Claims of Compliance

If the firm does not meet all the requirements of the GIPS standards, the firm cannot represent or state that it is “in compliance with the Global Investment Performance  Standards except for...” or make any other statements that may indicate partial compliance with the GIPS standards.

• GIPS Requirement 1.a.9 - GIPS Compliance Disclosure

Statements referring to the calculation methodology as being “in accordance,” “in compliance,” or “consistent” with the Global Investment Performance Standards, or similar statements, are prohibited.

Comment: A Firm has only two options with regard to compliance with the GIPS standards: fully comply with all requirements of the GIPS standards and claim compliance through the use of the GIPS Compliance Statement or not comply with all requirements of the GIPS standards and not claim compliance with, or make any reference to, the GIPS standards. In other words, a firm cannot claim partial compliance.

• GIPS Requirement 1.a.10 - GIPS Calculation Methodology

Statements referring to the performance of a single, existing client portfolio as being “calculated in accordance with the Global Investment Performance Standards” are prohibited, except when a GIPS-compliant firm reports the performance of an individual client’s portfolio to that client.

• GIPS Requirement 1.a.27 - GIPS Hypothetical Performance

The firm must not link actual performance to historical, theoretical performance.

• GIPS Requirement 1.a.28 - GIPS Historical Data

Changes to the firm's organizational structure must not lead to the alteration of a firms historical composite performance.

Comment: Apart from correcting errors, historical composite results are not to be altered. Please note that this applies to firms that are ALREADY GIPS compliant. If you have never been GIPS compliant and you are about to be, you undoubtedly will probably alter your past performance results.

• GIPS Requirement 1.a.29 - Non GIPS Compliant Returns

For time-weighted returns presented in GIPS Reports, the firm must not link non-GIPS-compliant performance for periods beginning on or after the minimum effective compliance date to GIPS-compliant performance. The firm may link non-GIPS-compliant performance to GIPS-compliant performance in GIPS Reports provided that only GIPS-compliant performance is presented for periods beginning on or after the minimum effective compliance date.

• GIPS Requirement 1.a.30 - GIPS minimum Effective Date

For money-weighted returns presented in GIPS Reports, the firm must not present non-GIPS-compliant performance for periods ending on or after the minimum effective compliance date. The firm may present non-GIPS-compliant performance in GIPS Reports for periods ending prior to the minimum effective compliance date.

Comment: If you are showing periods prior to 2000, that are NOT GIPS compliant returns, a disclosure should be added. A Firm cannot link non-GIPS compliant performance to any performance period after 1/1/2000. Period. Prior to 2000, you need to provide information that is a) not misleading, b) have records to support the composite returns, and c) be able to disclosure what you used.

For Example: If have GIPS compliant returns from 1/1/1988 - 12/31/2014, and you are chosing to show Annualized periods on the GIPS Report then, you should add a disclosure. However, if you are not showing what those returns for those pre-2000 time period are, then no disclosure would be needed. It all depends on what you are showing in the GIPS Report.

Suggestion: A Firm CAN use a single account that would be REPRESENTATIVE of the strategy prior to 2000. This does not have to be the same account for the entire history, but it has to be representative of the strategy.

It would be recommended that the account be chosen NOT because of the returns, but be chosen because it is representative of the strategy.

If different accounts are to be used, to create the track record, it would ONLY make sense if a new account was chosen only because the previous account closed. Switches of accounts, 'just because', really wouldn't be considered 'fair and representative'. Of course, the account with the longest period of information is probably the best route to take.

If for some reason you have Bonds in an account, and you want to use that as a representative account, you COULD use the Equity Segment to create the track record. However, you would have to follow the Carve Out rules associated with the GIPS guidelines to do this. However, is creating a Carve Out really representative of the strategy though…?

• GIPS Recommendation 1.b.1

  The firm should comply with the recommendations of the GIPS standards, including recommendations in any Guidance Statements, interpretations, and Q&As published by CFA Institute and the GIPS standards governing bodies.

• Firms should be Verified.

*Information is created from a variety/multiple sources of CFA Institute materials.