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CFA Releases Revised Global Investment Performance Standards

Date: Monday, February 22, 2010
Author: Canadian Hedge Watch

The CFA Institute has just released  the most comprehensive edition of the Global Investment Performance Standards (GIPS) to date.  These standards have been under review for some considerable time.

The new standards are intended to help make safe and informed investment decisions as full disclosure requirements provide an ethical framework for the calculation and presentation of investment performance for investment management firms.  Advisors and firms need to communicate to their clients that they are GIPS compliant.

Some key changes to GIPS:

FF    Fair Value – Assets must be valued using a fair value methodology when no market value is available. 

· R   Risk – Firms will be required to present the standard deviation (widely accepted as a common measure of portfolio risk) of the monthly returns of both the composite and the benchmark

· C   Compliance Statement and Verification Status -  Firms must disclose their verification status (i.e. whether they have been verified) and also require prescribed language describing what is and is not covered by verification.

        “While compliance is voluntary, investors are increasingly demanding that firms comply,” said Jonathan Boersma, CFA, executive director of the GIPS standards at CFA Institute. “Firms that do not report their investment performance according to the GIPS standards are often excluded from competitive bids. By adhering to a universal set of standards that apply to investment management firms worldwide, investors are better served because firms are required to fully disclose their past performance based on the same criteria. This assists the investor in making fair comparisons when selecting an investment firm.”

Firms that claim compliance with the GIPS standards have until 1 January 2011 to adhere with the new requirements, and early adoption is recommended.  The revised GIPS standards are the outcome of a thorough, comprehensive review, and include amendments to clarify language and improve consistency throughout the provisions.

The revised Standards reflect the joint cooperation with Country Sponsor organizations in 32 countries that help develop and promote the adoption of the GIPS standards.  The revised GIPS standards represent an update to the 2005 edition, the second upgrade since their introduction in 1999.