10 Steps You Can Take to Get Your Presentations Ready for the 2020 Edition of the Global Investment Performance Standards (GIPS®)

Have you considered adopting the 2020 edition of the GIPS standards early? For some firms, it may not be as challenging as anticipated and might make sense to do this when updating reports to include annual 2019 returns in early 2020. One of the hurdles is to update what was formerly referred to as “compliant presentations.” The new term for a composite is a GIPS Composite Report. We have provided you with the top 10 highlights that should be considered when updating what will become your GIPS Composite Reports.

1. Replace the compliance statement

Delete your old compliance statement disclosure and replace it verbatim with the appropriate new disclosure because the wording has significantly changed. You now must choose from one of the three options below:

Verified firm – “[Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has been independently verified for the periods [insert dates]. The verification report(s) is/are available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.”

Verified firm with a specific composite examined – “[Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has been independently verified for the periods [insert dates]. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. The [insert name of composite] has had a performance examination for the periods [insert dates]. The verification and performance examination reports are available upon request.”

Firm that has not been verified – “[Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. [Insert name of firm] has not been independently verified.”

2. Add the newly required disclosure to all GIPS Composite Reports

“GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.”

(This language may not be altered in any way.)

3. Replace “compliant presentation” with “GIPS reports”

The required disclosure referencing the policies being available upon request must be updated to reflect new terminology. The new disclosure should read:

“Policies for valuing investments, calculating performance, and preparing GIPS reports are available upon request.”

(This wording replacement should be done throughout your GIPS Policies and Procedures Manual as well.)

4. Add the inception date (and keep the creation date)

It is now required to disclose the composite inception date, which is defined as the initial date of the composite’s track record.

5. Delete percentage of non-fee paying

If you present composite net-of-fees returns that are calculated using model fees, remove the column from the table or the sentences in the disclosures that relate to non-fee paying accounts. (This percentage must remain if net-of-fees returns using actual fees is presented.)

6. Modify total firm assets information, if needed

Historically, firms have had the option to present either total firm assets or composite assets as a percentage of total firm assets. For periods ended on or after December 31, 2020, firms must present total firm assets. If composite assets as a percentage of total firm assets has been presented historically, no restatement is required. Firms can continue to present composite assets for both historical and prospective periods, but they must also present total firm assets prospectively.

The requirement that firms must not include advisory-only assets in total firm assets still holds. Also, there is a new requirement that uncalled committed capital must not be included in total firm assets, which has an effective date of January 1, 2020. If a firm previously included uncalled committed capital in total firm assets, it is not required to change previously reported total firm assets. Firms may also present information about both advisory-only assets and uncalled committed capital in GIPS Reports, at both the firm level and the composite level.  Firms choosing to present advisory-only assets or uncalled committed capital should look at sample 3 on page 89 and sample 4 on page 103 within the 2020 GIPS Standards for Firms for presentation guidance.

7. Delete any disclosure that pertains to time periods no longer included in the presentation

This item is not new but is often overlooked. While the GIPS reports are being revised, do a complete review and determine if any disclosures are no longer applicable or if the required time period for disclosing has expired. There are some disclosures that are only required for one year unless they are relevant for interpreting the track record. The five items with a one year minimum are: significant events, composite name change, benchmark change, material errors, and return type change.

8. Add whether gross-of-fees or net-of-fees returns are used to calculate risk measures

Presenting the internal dispersion and external dispersion continues to be required. What is new is an addition to the disclosures that accompany these measures. Firms must disclose whether the gross-of-fees or net-of-fees annual account returns were used in the internal dispersion calculation, and whether gross-of-fees or net-of-fees monthly composite returns were used in the three-year annualized ex post standard deviation calculation.

9. Add to composite descriptions how leverage, derivatives, and short positions may be used

The 2010 edition of the GIPS standards required firms to disclose information about leverage, derivatives, and short positions, if they had been used as a material part of the strategy. Firms now must also disclose as part of a composite’s description how they may be used prospectively if they are considered a material part of the strategy.

10. Add applicable pooled fund fee schedules & expense ratios when presenting composite performance to a prospective investor in the applicable pooled fund

Firms with both segregated accounts and pooled funds will have additional decisions to make regarding the assignment of pooled funds to composites with segregated accounts or including them in their own pooled fund composite. For a firm that chooses to include pooled funds in composites with segregated accounts and chooses to present the GIPS Composite Report to a prospective investor in a pooled fund, they must include the pooled fund fee schedule and expense ratio for the respective pooled fund.

The list above does not cover all scenarios or include all items that must be updated within the GIPS reports in order to maintain compliance. Please contact Greta Nathan at greta.nathan@fairviewperformance.com or (919) 576-2365 for a more comprehensive review of your specific GIPS Reports and what can be done now.