What Are Global Investment Performance Standards (GIPS)?

What Are Global Investment Performance Standards (GIPS)?

Let me explain what Global Investment Performance Standards (GIPS) are—they're a set of voluntary rules that guide how investment managers like me calculate and present performance data to you, the investor, in a uniform way. These standards create a framework that builds trust and transparency in the industry.

You should know that GIPS are used by investment managers around the world to ensure full disclosure and fair representation of their results. The main point is to let you compare one firm's performance directly against another's without any tricks or inconsistencies.

These standards come from the CFA Institute, which is a global group for investment professionals, and they're overseen by the GIPS Executive Committee. Remember, they're voluntary, but following them shows a commitment to ethical practices.

Key Takeaways

Here's what you need to grasp: GIPS are voluntary guidelines adopted by investment firms globally. Their core goal is to push for complete disclosure and honest portrayal of investment performance. Plus, a updated version rolled out in 2020 to keep things current.

Important Note

Keep in mind that GIPS exist so you can compare investment firms from anywhere in the world on a level playing field.

How Global Investment Performance Standards (GIPS) Work

From my perspective, GIPS function as standardized ethical principles that direct investment managers and asset owners on fairly calculating and sharing their results with potential clients, as defined by the CFA Institute. Since they're voluntary, firms decide whether to follow them, but doing so simplifies operations across countries by avoiding the hassle of different local rules for performance reports.

The CFA Institute points out that these standards let you compare one firm's track record straight up against another's. They require composite presentations to boost transparency, cutting out issues like survivorship bias, misrepresentations, or leaving out historical data. The standards also adapt to new challenges in the investment world and encourage firms to build strong internal controls and benchmarks for long-term reliability.

To claim compliance, a firm has to follow detailed rules on input data, calculation methods, composite building, disclosures, and reporting. You'll often see investment companies highlight their GIPS compliance, which adds credibility, particularly when they're operating beyond established markets like North America and Europe.

History of Global Investment Performance Standards (GIPS)

Let me walk you through the background: The origins trace back to the Association for Investment Management and Research–Performance Presentation Standards (AIMR–PPS), set up in 1987 as voluntary guidelines for firms in the US and Canada.

As the need grew for something more global, GIPS were first launched in 1999. Then, in 2005, the CFA Institute—after the association's name change—updated them to establish a single worldwide standard, replacing various country-specific ones.

The newest edition came out on June 30, 2019, and started applying from January 1, 2020. Today, according to the CFA Institute, GIPS are in use across 50 markets, and all the top 25 global asset managers claim compliance.