1 The Role of GIPS in the benchmarking & monitoring of Hedge Fund performance Carl Bacon 1 st July 2008

2 2 Why are Standards needed? “All” asset managers above average “Cherry picking” accounts “Cherry picking” time periods Self-selection Misleading advertising

3 3 Misleading Advertising

4 4 GIPS Objectives To obtain worldwide acceptance of standards for calculating & presenting results To ensure accurate and consistent data To promote fair, global competition among investment firms To promote industry self-regulation on a global basis GIPS are Ethical standards

5 5 GIPS (Why should managers do it?) Global Passport Marketing advantage Client driven (Level –playing field) Self-Regulation Internal Control (Good practice) –More efficient –Better data/ information –Risk control

6 6 GIPS ( Why clients should demand it?) Basic Hygiene factor If not compliant, is the asset manager?: i)Not committed to ethical standards ii)Controls so weak they cannot achieve compliance iii)Not prepared to make the appropriate investment

7 7 Who are Standards aimed at? All “users” of Investment Performance Information –Institutional –Private Clients –Retail, if not covered by existing regulations All asset/product types –Equity/ Fixed Income/ Multi-currency –Real Estate/ Property –Venture Capital/Private Equity –Derivatives/Overlay/Leverage –Hedge Funds/ Alternative Investments/ Absolute Return

8 8 Endorsed Country Sponsors  Australia  Austria  Belgium  Denmark  France  Germany  Hong Kong  Hungary  Ireland  Italy  Japan  Kazakhstan  Korea  Liechtenstein  Luxembourg  Micronesia  Netherlands  New Zealand  Norway  Poland  Portugal  Singapore  South Africa  Spain  Sweden  Switzerland  UK  Ukraine  U.S. & Canada

9 9 Necessity of Standards In summary, the Standards: –Ensure comparability for the investor –Promote credibility for and build trust within the investment management industry –Assist in global marketing efforts

10 Does GIPS apply to hedge funds? Clients are not interested Composites not relevant No specific requirements in the standards Firm, not fund specific

11 Does GIPS apply to hedge funds? More institutionalised Consistency –Methodology –Valuation Independent Verification

12 Alternative Strategies Working Group Performance Fees Side pockets Master-feeder structures Risk measures

13 Resources GIPS Website: CFA Institute Website: GIPS GIPS Handbook: