5/8/2018 2020 GIPS® Standards: What It Means for Firms Considering Compliance or Already Compliant Presented to: CFA Society Oklahoma July 17, 2019

Key Takeaways We’ll Cover What are the GIPS standards? Why comply with the GIPS standards? What changed? Segregated account managers Managers of pooled funds The Compliant Presentation / GIPS Composite Report Advertising Guidelines 2020 GIPS Standards

What are the GIPS® Standards? Global Investment Performance Standards (GIPS) – ethical guidelines for calculating and presenting investment performance Industry best practices – Promote fair competition and full disclosure Compliance is voluntary – A way to set your firm apart from the competition 2020 GIPS Standards

What are the GIPS® Standards? Firmwide compliance – not strategy/composite-specific Written policies for defining your firm and strategies, how you value and calculate performance, how, what and when you present and what to do if there is an error Portfolio accounting system composite capabilities and add- on software for calculating compliant performance Mandatory reporting framework is the primary intersection of a firm’s compliance and consultants and prospective clients 2020 GIPS Standards

Why Comply with the GIPS standards? GIPS compliance has become the industry standard Becoming compliant demonstrates a commitment to best practices Consultants/Prospective clients often require compliance when selecting managers Documented policies & procedures better internal controls & efficiencies 2020 GIPS Standards

GIPS Statistics More than 1,685 firms have notified CFA Institute of their claim of compliance Of those, about 87% are verified 85% of the firms also elected to have the name of their firm listed on the GIPS website All or a portion of 84 of the top 100 global asset management firms claim GIPS compliance Source: CFA Institute 2020 GIPS Standards

What Changed? Mission and Objectives: “The mission of the GIPS standards is to promote ethics and integrity and instill trust through the use of the GIPS standards by achieving universal demand for compliance by asset owners, adoption by asset managers, and support from regulators for the ultimate benefit of the global investment community. 2020 GIPS Standards

Updates for Segregated Account Managers Minimal required changes More guidance on treatment of advisory assets, overlay exposures and broader guidance for private market investments Options for carve-outs More streamlined Advertising Guidelines Assessment of Verifiers Independence 2020 GIPS Standards

Updates for Pooled Fund Managers Important option to apply fund reporting requirements, instead of composite reporting requirements For real estate, private equity and other private market investments, option to report using MWRs instead of TWRs Options for carve-outs More streamlined Advertising Guidelines Assessment of Verifiers Independence 2020 GIPS Standards

Policy and Procedure Updates Nuanced changes – recommend a policy and procedure review with your consultant/verifier Terminology changes % of net of fee portfolios only required if presenting actual net performance Indicating the location of the GIPS report in marketing materials Portability – optional, and specifically addressing whether or not there is a break in performance If not yet claiming compliance – recommend finding a template that is current for the 2020 GIPS standards 2020 GIPS Standards

The GIPS Composite Report Annual Performance and Benchmark for 5 years building to a minimum of 10 years Identified as Gross or Net of Fees SEC requires gross and net equally prominent OR gross with additional disclosures Composite Assets and Number of Accounts Firm Assets Measure of Internal Dispersion – Usually Standard Deviation Three-year annualized ex-post standard deviation – recommend using gross returns and require disclosure of whether gross or net returns are used. 2020 GIPS Standards

Presentation Fundamentals and Distribution Requirements – When & Where Must make every reasonable effort to provide to all Prospective Clients with the initial performance presentation and every 12 months. Firms must NOT choose to whom they present. Prospective Client is defined as anyone who: Has expressed interested Is qualified to invest Consultants and database interfaces for prospective clients fit this definition and must receive every 12 months Existing clients can fit this definition, if considering another strategy. If included in marketing materials, must indicate the GIPS report is included. 2020 GIPS Standards

GIPS Compliance Statement “[Insert name of FIRM] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of FIRM] has been independently verified for the periods [insert dates]. The verification report(s) is/are available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm's policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.” 2020 GIPS Standards

Compliant Presentation Disclosures Claim of Compliance Verbatim Discloses whether independently verified/examined/or not Definition of firm and description of composite and benchmark – additional custom benchmark disclosures Fee schedule, state model fee if net only is presented Composite creation date and inception date Valuation, Calculation and Presentation Policies available upon request, along with full list of composite descriptions, list of limited distribution fund descriptions and list of broadly distributed funds Reporting currency Treatment of withholding taxes, if material; if benchmark is net of withholding taxes if known GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. 2020 GIPS Standards

Carve-Outs For established HNW managers offering clients multi-asset strategies, it’s challenging to move into the institutional market without being able to capture product-specific performance, i.e. equity only or fixed only returns Prior to 1/1/2010, firms could show their equity only carve-out performance, with a hypothetical cash allocation Since 1/1/2010, in order to do that firms had to manage the carve- out with its own cash 2020 GIPS Standards

2020 Carve-Outs Requirements Similar to creating a composite – all accounts managed in the same strategy must be included in the carve-out If and when any stand-alone accounts are under management, the firm must also create a stand-alone composite The GIPS report for the composite that includes allocated cash must: Include performance and assets of the stand-alone composite and the % of composite assets represented by the carve-out as of each year-end Be representative of the strategy and the strategy fees (equity vs balanced) Disclose that the composite includes carve-outs with allocated cash & how allocated Indicate “Carve-out” in the composite name 2020 GIPS Standards

Carve-Outs Can carve-outs be applied retroactively? – yes! However, firms are encouraged to keep maintaining and presenting total return multi-asset class portfolios if already established. Whether carve-outs make compliance easier for HNW managers providing multi-asset portfolio management will depend on whether the individual asset class performance records are generally consistent over time. 2020 GIPS Standards

Advertising Guidelines The Advertising Guidelines provide abbreviated disclosure requirements if you choose to claim compliance. A different claim of compliance statement: “[Name of Firm] claims compliance with the Global Investment Performance Standards (GIPS®).” If claiming compliance with 2020 GIPS standards in an advertisement, but not showing performance, the following two additional disclosures are required: GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. How a prospective client can obtain a GIPS report. Apply if: The firm is in compliance and maintains full GIPS Reports The firm wants to mention compliance with GIPS in the advertisement 2020 GIPS Standards

2020 GIPS Advertising Changes If showing performance 1-3-5 year annualized performance through the most recent period (i.e. quarter- end) 1-3-5 year annualized performance through the most recent year-end, plus period-to-date performance through the most recent period 5 calendar years of performance, plus period-to-date performance through the most recent period A fourth option added: one annualized return corresponding with the Composite report, through the most recent period or recent annual period 2020 GIPS Standards

Next Steps For valuation and methodologies – January 1, 2020 For presentations – January 1, 2021 GIPS Composite Reports, GIPS Pooled Fund Reports, and GIPS Asset Owner Reports that include performance for periods ending on or after December 31, 2020 must be prepared in accordance with the 2020 edition of the GIPS standards. 2020 GIPS Standards

Q&A Kim Cash, CPA, CFA, CAIA, CIPM 503.887.6008 5/8/2018 Q&A Kim Cash, CPA, CFA, CAIA, CIPM Cascade Investment Compliance & Verification 503.887.6008 kim.cash@cascadecompliance.com