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Move on towards global reporting standards Back  
All European fund managers who responded to a recent survey expect to become compliant with the Global Investment Performance Standards (‘GIPS’) or equivalent local standards within the next two years. Vincent Mac Mahon looks at the results of the recent survey and the global standards one year after their issuance
The Global Investment Performance Standards (GIPS) are a set of guidelines developed by a committee of leading global investment professionals and co-sponsored by the Association of Investment Management and Research (‘AIMR’) in the United States. The standards seek to promote the fair presentation and full disclosure of investment performance within the framework of self regulation. Effectively the standards will put compliant asset managers in a level playing field in terms of their presentation of investment performance to prospective clients.

Development of the standards

The global standards have their roots in the AIMR standards widely accepted by the US investment community. The US standards have been broadened to reflect the particular circumstances of global asset managers and the requirements of international pension clients and consultants. The standards which were published in final form in early 1999 came into effect from 1 January 2000. At present, it is expected that GIPS will be complementary to any local standards that already exist in many markets however the movement to a GIPS + regime is gaining momentum and due to their global nature the standards are expected to become the sole standard in due course.

European Survey
The survey, “Trends in Performance Measurement: A European Survey of Compliance with Performance Presentation Standards” conducted earlier this year by PricewaterhouseCoopers provides an insight into European investment management performance reporting and the progress that has taken place over the last 12 months.

The survey looks at trends, emerging issues and changes in the perception regarding many aspects of complying with presentation standards. Responses from continental Europe were significantly higher than last year, the first survey conducted. Fund managers are observing that compliance with the standards is not only a marketing advantage but also provides a comfort factor for internal control.

Similar surveys have been undertaken in the United States for a number of years on the AIMR standards. Respondents to the European survey were from the UK (27%), Belgium (3%), Netherlands (3%), Germany (13%), Ireland (3%), Norway (3%), Luxembourg (8%) and Poland (11%).

Highlights of European Survey

Of the 100 top European investment managers surveyed, just over one quarter of respondents claim to be fully compliant, which is marginally higher than last year. It is interesting to note that many respondents to last year’s survey intended to be compliant with the standards within one year so we would conclude that perhaps the movement to compliance is a longer and more involved process than expected. As the industry moves towards a position where most asset managers are compliant, investors and consultants will be able to make more informed comparisons of investment managers particularly across borders.

The survey reveals a significant decline in fund managers expressing no plans for becoming compliant. This shows clearly that the European market place is happy to embrace the standards as the most relevant to the global marketplace over the next five years.

Summary of standards

The standards themselves are voluntary however if managers seek to be in compliance with the standards then they are required to present performance fully in accordance with them. The standards have a number of required and recommended disclosures and practices. At present GIPS have to address specific issues on a global basis and therefore provide for only some uniformity in methods of calculating the performance numbers however it is expected that the requirements will become more prescriptive in the future leading to greater comparability. It means that eventually a potential purchaser of asset management services will be able to pick up a compliant performance presentation from anywhere in the world and be assured that it provides consistent calculation and presentation of data. Apart from the requirements and recommendations of the standards, the overriding concept is the fairness of the information provided to prospective clients.

The standards determine the rules for defining the Firm and detail five separate areas for consideration. These are input of information, calculation methodology, composite construction, disclosure and presentation. To enable managers work towards compliance, some requirements and recommendations are postponed from the effective date of 1 January 2000, i.e. the need to value portfolios on a monthly basis (2001) or the full use of trade date accounting (2005).

The standards also outline the procedures for the verification of compliance by an independent party. While the standards do not require verification, it will obviously add credibility to the firm’s claim of compliance and hence its track record. Verification is an ongoing process to validate the firm’s claim of compliance and if the history of the AIMR standards are anything to go by, will be an added advantage for asset managers seeking to break into increasingly competitive markets.

The harmonisation of the way in which asset managers present their historical performance results is supported by the industry, consultants and the ultimate purchasers of the services. GIPS as the global standard will change the way that investment firms interact with their potential clients and therefore those who choose to seek compliance will benefit from the changes while non compliant firms will find themselves increasingly alienated from the customers they wish to attract.

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