GIPS Portability Rules
GIPS Portability refers to the ability of a GIPS®-compliant firm to present a track record that was achieved at another firm.
GIPS Portability Requirements
GIPS Requirement 1.a.32
Performance from a past firm or affiliation may be used to represent the historical performance of the new or acquiring firm and linked to the performance of the new or acquiring firm if the new or acquiring firm meets the following requirements on a composite-specific or pooled fund–specific basis:
Substantially all of the investment decision makers are employed by the new or acquiring firm (e.g., research department staff, portfolio managers, other relevant staff);
The decision-making process remains substantially intact and independent within the new or acquiring firm;
The new or acquiring firm has records that document and support the performance.
There must be no break in the track record between the past firm or affiliation and the new or acquiring firm.
If there is a break in the track record:
The new or acquiring firm must separately present the performance before the break and after the break.
The new or acquiring firm must not link performance prior to the break in the track record to the performance after the break in the track record.
GIPS Requirement 1.a.34
If the firm acquires another firm or affiliation, the firm has one year to bring any non-compliant assets into compliance. Assets of the acquired non-compliant firm or affiliation must meet all the requirements of the GIPS standards within one year of the acquisition date, on a going forward basis.
GIPS Requirement 4.c.37
The firm must disclose if performance from a past firm or affiliation is presented, and for which periods.
GIPS Portability Information
Some firms may wish to purchase another firm entirely, purchase the investment team only (and its track record), or an investment team may just switch firms. In these instances, the historical track record of the firm and/or the investment team is typically desired to market with the new firm. Therefore, GIPS Portability Rules are followed to ensure consistency of the previously reported returns.
Most firms don't have the supporting documentation to accomplish this, unless it was a friendly merger or acquisition OR the people leaving obtained all of the data prior to their departure.
As of 1/1/2020, firms are no longer REQUIRED to link the performance and they MAY choose to do so.
Carve-outs of certain composites are not linkable. Meaning, your firm cannot take some of the accounts from the previous firm, and re-create a historical track record to link to the current track record.
Example: If your firm has 10 accounts in a composite, but were only able to find documentation for 6 of them from the previous firm. You could not re-create the composite history with just the 6 accounts. The entire historically reported composite return series must be linked utilizing all of the accounts in the historical composite track record. Otherwise, the information must then NOT be linked, and then the track record starts anew.
Unlike the GIPS standards, the SEC permits, but does not require, investment advisers to advertise performance figures achieved by an employee or team while managing assets at another firm.
GIPS Portability Supporting Documentation
These are just some of the items a purchasing firm would want to ask for in order to utilize, and therefore support the GIPS historical track record with the new firm:
A description, including a summary of the investment style and the benchmark(s) used, for each GIPS composite.
Most recent copy of marketing material including full GIPS Report.
A description of GIPS composite construction policies including GIPS performance calculation methodologies and type and measure of dispersion.
For any client accounts in each GIPS composite, copies of investment management contracts and amendments, along with materials that support the reason(s) for composite inclusion/exclusion & discretion determinations.
Monthly performance data for each composite and client account performance from inception through the final day of the month immediately preceding the date on which the client account is terminated (including closed accounts).
For each composite, the number of client accounts (historically), account name, valuation date, ending market values, accrued income, gross and net returns used for composite/client reporting.
Historical client statements hat were delivered to clients on a regular basis.
External monthly custodial records for each client account in each composite, which include all holdings and transaction information for each month end.
Internal Portfolio Accounting System holdings and transaction information for each client account in each composite. Holdings data should include items such as share amount, price, cusip, ticker, accruals, etc. Transaction data should include items such as share amount, date of transaction, contribution/withdrawals, etc.
Monthly reconciliation records for each client portfolio, if available.
*Information is created from a variety/multiple sources of CFA Institute materials.
