What are the general requirements of the Global Investment Performance Standards (GIPS)?

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AcadiFi · Accepted Answer

GIPS (Global Investment Performance Standards) is a voluntary ethical framework for investment performance presentation, maintained by CFA Institute. Firm compliance is all-or-nothing — you cannot claim partial GIPS compliance.

GENERAL REQUIREMENTS (high-level):

1) Firm definition — the GIPS-compliant entity must be an investment management firm, subsidiary, or division held out to clients as a distinct business unit.

2) All-firm compliance — ALL fee-paying discretionary portfolios must be included in at least one composite. No cherry-picking winning portfolios.

3) Minimum 5-year history — firms must show at least 5 years of GIPS-compliant history (or since inception if less), building to 10 years.

4) Input data requirements — fair value policies, trade-date accounting, accrual accounting for fixed income.

5) Calculation methodology — time-weighted returns using approved methods, gross and net of fees, total returns including realized and unrealized gains.

6) Composite construction — group portfolios into composites based on similar investment strategy or objective. Composites must include all such portfolios.

7) Disclosure — firms must disclose specific items (benchmark, currency, fees, number of portfolios, dispersion, etc.).

8) Presentation and reporting — specific templates and required statistics.

9) Error correction policy — firms must have a documented policy for handling and correcting errors.

10) Verification — RECOMMENDED but not required. Third-party verifier attests to firm-wide compliance.

At Silverbrook Asset Management, claiming GIPS compliance required rewriting performance policies, grouping 127 accounts into 8 composites, and engaging Linden Verification Services for annual verification.

For CFA Level III, focus on understanding the 'all-firm' principle and the distinction between requirements (must) and recommendations (should).

What are the general requirements of the Global Investment Performance Standards (GIPS)?

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