The Global Investment Performance Standards (GIPS) for Firms meet the need for globally accepted standards for investment management firms in calculating and presenting their results to clients and prospective clients. The GIPS standards will continue to evolve to address additional aspects of performance presentation.

Firms that claim compliance must meet all applicable requirements, including not only the provisions of the GIPS standards but also any Guidance Statements, interpretations, and Questions & Answers published by CFA Institute and the GIPS standards governing bodies. Practitioners should register for the GIPS Newsletter to stay informed about existing and new requirements and recommended best practices.

• What Are Global Investment Performance Standards (GIPS)?
• How does the Global Investment Performance Standards (GIPS) Work?
• What are the 9 Sections of GIPS?
• What are Some Key Features of GIPS?
• What are GIPS Requirements?
• What are the Objectives of GIPS Standards?
• What are the Steps to GIPS Compliance?
• Who can Claim GIPS Compliance?
• Who Created the Global Investment Performance Standards?
• How many Firms are GIPS Compliant?
• How do you Comply With GIPS?
• What is GIPS Verification?
• How Much does it Cost to Become GIPS Compliant?

What Are Global Investment Performance Standards (GIPS)?

Global Investment Performance Standards (GIPS) are a set of voluntary standards used by investment managers throughout the world to ensure the full disclosure and fair representation of their investment performance. The goal of the standards is to make it possible for investors to compare one firm’s performance against that of another firm.

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The Global Investment Performance Standards were created by the CFA Institute, a global association for investment management professionals, and are governed by the GIPS Executive Committee.

How does the Global Investment Performance Standards (GIPS) Work?

The Global Investment Performance Standards are a “set of standardized, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients,” according to the CFA Institute. Because the standards are voluntary, investment firms can choose to comply with them or not.

However, because the standards are in wide use worldwide, complying with them makes it easier for investment firms to do business in multiple countries, saving them the time of having to apply different performance calculation measures for investment presentations, depending on the locale.

The CFA Institute says the standards:

• “Enable investors to directly compare one firm’s track record with another firm’s record.
• “Include composite presentation, improving transparency by eliminating survivorship biases, misrepresentations and historical data omissions.
• “Evolve to address issues that arise in a dynamic investment industry.
• “[Incentivize] firms to invest significant time and resources into internal risk-control mechanisms and setting performance benchmarks — the hallmarks of reliable long-term success. (To claim compliance, an investment firm must demonstrate adherence to comprehensive rules governing input data, calculation methodology, composite construction, disclosures, and presentation and reporting.)”

Investment management companies often make a point of indicating that they are “GIPS compliant.” That can lend additional credibility to companies, especially those that do business outside the more mature markets of North America and Europe.

What are the 9 Sections of GIPS?

Following are the nine sections involved in GIPS. Each section has requirements and recommendations. All requirements must be met in order to be fully compliant with the GIPS. Firms are encouraged to adopt and implement the recommendations.

1. Fundamentals of Compliance: Several core principles create the foundation for the GIPS standards, including properly defining the firm, providing compliant presentations to all prospective clients, adhering to applicable laws and regulations, and ensuring that information presented is not false or misleading.
2. Input Data: Consistency of input data used to calculate performance is critical to effective compliance with the GIPS standards and establishes the foundation for full, fair, and comparable investment performance presentations.
3. Calculation Methodology: Achieving comparability among investment management firms’ performance presentations requires uniformity in methods used to calculate returns. The GIPS standards mandate the use of certain calculation methodologies to facilitate comparability.
4. Composite Construction: A composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy. The composite return is the asset-weighted average of the performance of all portfolios in the composite. Creating meaningful composites is essential to the fair presentation, consistency, and comparability of performance over time and among firms.
5. Disclosure: Disclosures allow firms to elaborate on the data provided in the presentation and give the reader the proper context in which to understand the performance. To comply with the GIPS standards, firms must disclose certain information in all compliant presentations regarding their performance and the policies adopted by the firm. Although some disclosures are required for all firms, others are specific to certain circumstances and may not be applicable in all situations. Firms are not required to make negative assurance disclosures (e.g., if the firm does not use leverage in a particular composite strategy, no disclosure of the use of leverage is required). One of the essential disclosures for every firm is the claim of compliance. Once a firm meets all the requirements of the GIPS standards, it must appropriately use the claim of compliance to indicate compliance with the GIPS standards.
6. Presentation and Reporting: After constructing the composites, gathering the input data, calculating returns, and determining the necessary disclosures, the firm must incorporate this information in presentations based on the requirements in the GIPS standards for presenting investment performance. When appropriate, firms have the responsibility to include in GIPS compliant presentations information not addressed by the GIPS standards.
7. Real Estate: Unless otherwise noted, this section supplements all of the required and recommended provisions in Sections 0–5. Firms should note that certain provisions of Sections 0–5 do not apply to real estate investments or are superseded by provisions within Section 6. The provisions that do not apply have been noted within Section 6.
8. Private Equity: Unless otherwise noted, this section supplements all of the required and recommended provisions in Sections 0–5. Firms should note that certain provisions in Sections 0–5 do not apply to private equity investments or are superseded by provisions within Section 7. The provisions that do not apply have been noted within Section 7.
9. Wrap Fee/Separately Managed Account (SMA) Portfolios: Unless otherwise noted, this section supplements all of the required and recommended provisions in Sections 0–5. Firms should note that certain provisions in Sections 0–5 of the GIPS standards do not apply to wrap fee/SMA portfolios or are superseded by provisions within Section 8. The provisions that do not apply have been noted within Section 8.

What are Some Key Features of GIPS?

The main characteristics of the CFA Institute Global Investment Performance Standards are as follows:

• ethical standards
• for asset managers
• to be applied both company-wide and industry-wide
• goals: accurate investment performance measurement, fair representation, full disclosure
• govern the investment performance process: from data input to performance presentation
• include not only returns provisions but also risk provisions (as of 2010)
• industry best practice established through requirements & recommendations
• use of composites required
• integrity of input data and specific calculation methodologies required
• compliance with all requirements required, incl. updates, interpretations, etc.
• requirements are just the minimum (for full compliance, adherence to recommendations may be also needed)

What are GIPS Requirements?

One of the key requirements of the GIPS standards is the use of composites. A composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy. Composites prevent firms from cherry picking only the best performing accounts while reporting performance.
Assume a firm manages portfolios based on one of the following strategies:

Strategy A: Aggressive growth. Under this strategy the firm selects small-cap stocks with strong growth potential over the next few years.
Strategy B. Large cap value. Under this strategy large-cap value stocks are selected.

Give this scenario the firm should create a composite for Strategy A, and another composite for Strategy B.
A composite must include all actual, fee-paying, discretionary portfolios managed in accordance with the same investment mandate, objective, or strategy. By “actual” we mean these should be real and not dummy/model portfolios to simulate the returns. Portfolios for which the client does not pay a fee must not be included. 

For instance, there may be charitable organizations that do not pay a fee for their assets being managed. These should not be included. By “discretionary”, we mean the investment management firm has the right to determine and purchase suitable securities for a portfolio. If there is a portfolio where the client determines what securities should be purchased, then it is non-discretionary.

The determination of which portfolios to include in the composite should be done according to pre-established criteria (i.e. on an ex-ante basis), not after the fact. This prevents a firm from including only the best-performing portfolios.
To claim compliance all fee-paying discretionary accounts managed by the firm must be included in at least one composite.

What are the Objectives of GIPS Standards?

GIPS Objectives

• To promote fair, global competition among investment firms
• To promote industry self-regulation on a global basis
• To obtain worldwide acceptance of standards for calculating & presenting results

Key Features

Key features of the GIPS standards include the following:

• The GIPS standards are ethical standards for investment performance presentation to ensure fair representation and full disclosure of investment performance. In order to claim compliance, firms must adhere to the requirements included in the GIPS standards.
• Meeting the objectives of fair representation and full disclosure is likely to require more than simply adhering to the minimum requirements of the GIPS standards. Firms should also adhere to the recommendations to achieve best practice in the calculation and presentation of performance.
• The GIPS standards require firms to include all actual, discretionary, fee-paying portfolios in at least one composite defined by investment mandate, objective, or strategy in order to prevent firms from cherry-picking their best performance.
• The GIPS standards rely on the integrity of input data. The accuracy of input data is critical to the accuracy of the performance presentation. The underlying valuations of portfolio holdings drive the portfolio’s performance. It is essential for these and other inputs to be accurate. The GIPS standards require firms to adhere to certain calculation methodologies and to make specific disclosures along with the firm’s performance.
• Firms must comply with all requirements of the GIPS standards, including any updates, Guidance Statements, interpretations, Questions & Answers (Q&As), and clarifications published by CFA Institute and the GIPS Executive Committee, which are available on the GIPS website (www.gipsstandards.org) as well as in the GIPS Handbook.

What are the Steps to GIPS Compliance?

GIPS are standards, not laws. Firms do not have to be GIPS compliant. Furthermore, these standards are not codified into U.S. securities law. However, although they are voluntary, they provide discipline to the calculation and confidence in the performance represented.

Before performance is calculated and presented, there is some groundwork for the firm to do. The first thing a firm must do is actually define the firm. This may sound very obvious, but there might be legitimate reasons that a subsidiary would be excluded from a firm definition.

The next step involves a firm’s composites. One of the most important things a firm can do is to define its composites in a logical and meaningful way. GIPS requires that all of a firm’s discretionary, fee-paying portfolios be included in at least one composite. The GIPS Handbook defines a composite as, “an aggregation of one or more portfolios into a single group that represents a particular investment objective or strategy”—think “emerging market equity” or “global fixed-income.”

The provisions of the standards cover several other items including calculation, as well as presentations and disclosures. For example, time-weighted (as opposed to money-weighted) rates of return are required.

Some firms probably feel as though the largest part of their performance presentations are the GIPS required disclosures, as firms are required to disclose many items including a definition of the firm, whether performance is net of fees or gross of fees, and what additional information must be disclosed upon request.

Who can Claim GIPS Compliance?

Software companies cannot claim GIPS compliance, only the investment firms that purchase their software can as long as they meet all the requirements of the Standards. Purchasing software alone does not ensure compliance.

Your firm manages many products. The firm is considering dividing the products into those which will meet GIPS standards and those that do not, so that the company can claim compliance on some of the products.

In order to claim GIPS compliance, the firm must actually manage the assets for which they are claiming compliance.

Who Created the Global Investment Performance Standards?

The forerunner of the Global Investment Performance Standards was the Association for Investment Management and Research–Performance Presentation Standards (AIMR–PPS). Created in 1987, this was a set of voluntary performance guidelines for investment management firms in the United States and Canada.

In response to the need for a more international set of guidelines, the Global Investment Performance Standards were first introduced in 1999. In 2005 the CFA Institute, as the Association for Investment Management and Research had been renamed, approved a revised set of guidelines to create a single global standard of investment performance and replace the previous country-specific performance standards.

The most recent edition of Global Investment Performance Standards was released on June 30, 2019 and goes into effect on Jan. 1, 2020.

According to the CFA Institute, the Global Investment Performance Standards are currently used in “more than 40 markets globally” and “84 of the top 100 asset management firms worldwide claim compliance with the GIPS standards for all or part of their business. Combined, the top 100 GIPS-compliant firms represent more than US$50 trillion of assets under management.”

How many Firms are GIPS Compliant?

Seventy-four of the top 100 global asset management firms claimed compliance with the GIPS standards for some or all of their business as of 31 December 2014. Those firms represent 60% (more than $46 trillion) of the world’s assets under management, or AUM ($78 trillion).

Global Asset Manager	AUM (in USD billions), 2014
BlackRock	4652.00
State Street Global Advisors	2448.00
Fidelity Investments	2000.00
J.P. Morgan Asset Management	1744.00
The Bank of New York Mellon	1710.00
PIMCO	1680.00
AXA Group	1552.00
The Capital Group	1397.00
Deutsche Asset Management	1263.00
Prudential Financial	1176.00

Analyzing assets under management at the firm level is an effective way to measure the reach of the Standards, and adds perspective beyond just the number of GIPS-compliant firms. While providing AUM is optional, 1,340 firms (more than 82%) chose to disclose this information. Based on the data, firms with assets under $5 billion account for more than 66% of firms that claim compliance with the GIPS standards.

How do you Comply With GIPS?

Learn about the GIPS® standards:

Read the Global Investment Performance Standards (GIPS^®) and understand the benefits of compliance. GIPS standards conferences and interactive workshops, hosted by CFA Institute, are also available.

Evaluate the scope of work

Identify the changes your organization will need to undertake to comply. Some organizations use external advisors for this step of the process.

Implement changes

Make the necessary changes to policies, procedures, and systems. Train personnel so they understand the purpose of the changes and the importance of adopting them. 

Consider verification

Verification is a process by which an independent, third-party verifier conducts testing of a firm or asset owner in accordance with the required verification procedures of the GIPS standards. Verification provides assurance that policies and procedures related to specific GIPS standards requirements have been designed in compliance with those requirements and have been implemented on a firm-wide or asset owner-wide basis. The GIPS standards recommend, but do not require, verification.

Submit the GIPS Compliance Notification Form

Once requirements have been met, submit the GIPS Compliance Notification Form to CFA Institute.

Stay current

Keep up with developments in the GIPS standards, as well as local laws and regulations. Establish ongoing routines, such as reading the GIPS newsletter and attending events that focus on the GIPS standards.

What is GIPS Verification?

Verification of GIPS compliance asserts that the investment manager established policies that will ensure the firm remains GIPS compliant in the following areas: composite construction, pooled fund construction, performance calculation, performance presentation, and distribution of performance information. And further, verification tests that these policies and procedures have been implemented firm-wide.

The GIPS process starts with GIPS policies. The foundational item of GIPS compliance is that the firm must have formal, written policies to serve as the backbone of the firm’s compliance. As a consulting verifier, we provide the guidance and experience that helps compliance officers and performance managers create their very own GIPS policies. We have helped hundreds of firms over the last 16 years, and we know the best practices that succeed.

Once the policies are in place, the firm will be asked to provide the quantitative data that we will be verifying in small, digestible, and easily understood bites—both at the firm level, as well as at composite and account levels. Most emerging managers possess this data in Excel spreadsheet format, while others have invested in software solutions that help with composite construction and portfolio accounting.

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Lastly, they examine the firm’s distribution of performance information, according to the requirements set by the GIPS standards.

How Much does it Cost to Become GIPS Compliant?

GIPS verification costs can range from approximately US$10,000 to as high as six figures. The cost of your firm or organization’s GIPS verification is dependent upon a few key factors:

1. The size of your firm (e.g., number of accounts, and number of composites)
2. The number of years to be verified
3. The complexity of your firm

Firms that are already compliant and verified do not typically need a GIPS Planning Session or significant ongoing support prior to the verification. The GIPS Planning Session is the ideal first step for firms that are becoming compliant.

Firms approach GIPS Verification from many different perspectives. Some are looking to enhance internal controls surrounding the investment performance process. Others are aiming to distribute their strategies via a platform that favors GIPS-verified firms. And yet others know that many institutions invest their assets exclusively with investment managers that have been GIPS verified.

While most investment managers agree that GIPS verification would enormously benefit their firms, many are lost when it comes to estimating the cost of GIPS verification.

While large mutual fund complexes and sizeable institutional managers do pay high fees for this work, emerging managers will not likely pay over $30,000 per annum, and the vast majority will pay quite a lot less.