1. 5/8/2018
2020 GIPS® Standards:
What It Means for Firms Considering Compliance or Already Compliant
Presented to: CFA Society Oklahoma
July 17, 2019

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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 edition of the GIPS standards.
2020 GIPS Standards

21. 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