Global Investment Performance Standards (GIPS) are a set of voluntary standards designed to ensure full disclosure and fair representation of investment performance by investment managers worldwide. These standards facilitate comparison of one firm’s performance against another’s, offering enhanced transparency for investors.
Benefits of GIPS: Transparency & Credibility
GIPS were developed by the CFA Institute, a global association for investment management professionals, and are regulated by the GIPS Executive Committee. The principal aim is to enable global investors to directly compare investment firms with a consistent and ethical framework.
How Global Investment Performance Standards (GIPS) Work
GIPS are defined by a standardized set of ethical principles that guide investment firms in calculating and presenting their investment results to prospective clients. These voluntary standards simplify international business for investment firms by eliminating the need for diverse performance calculation methods across different regions. Here’s how GIPS enhance the investment landscape:
- Facilitate Reliable Comparisons: GIPS enable transparent comparisons by standardizing data presentation, removing biases, and ensuring accuracy in historical performance records.
- Encourage Risk Controls: Firms committed to GIPS invest in robust internal controls and benchmarking which signify long-term reliability.
- Address Evolving Challenges: As the investment industry grows and changes, GIPS adapt to cover emerging issues, ensuring continuous relevance and utility for firms and investors.
Key Advantages for GIPS-Compliant Firms
For investment management companies, indicating GIPS compliance bolsters credibility, especially crucial for those engaged in markets beyond North America and Europe.
Key Takeaways
- Unified Performance Standards: GIPS provide a single ethical standard for investment performance worldwide.
- Improved Transparency: They promote full disclosure and consistent representation of investment performance.
- Evolving Standards: The latest GIPS revision was released in 2019 and came into effect in January 2020.
Historic Evolution of GIPS
Predecessors to GIPS, the Association for Investment Management and Research–Performance Presentation Standards (AIMR–PPS), were introduced in 1987 as voluntary guidelines for North American firms. As global investing grew, the need for a universal standard became apparent, leading to the introduction of GIPS in 1999. A major revision in 2005 by the CFA Institute established a single global standard, superseding several country-specific norms.
The latest edition of GIPS, released on June 30, 2019, became effective on January 1, 2020. It is currently applied in over 40 global markets, with 84 of the top 100 asset management firms adhering to GIPS standards, representing over US$50 trillion in assets.
GIPS reflect a commitment to transparency and fair representation, crucial for investor trust and industry integrity in the rapidly evolving global investment realm.
Related Terms: investment management, performance standards, ethics in finance, international investment.
