Investment Performance Guy

The Global Investment Performance Standards (GIPS) are complicated and often confusing. 1. Using the asset-weighted version of the standard deviation for dispersion. The asset-weighted standard deviation was initially launched with the AIMR-PPS and falls under that wide category of things that made sense at that time (like, for example, the brake light that U.S.

I think it’s great when Carl Bacon, CIPM, and I agree on anything, and we both agree that this approach is flawed. Unlike the equal-weighted (i.e., universally standard) solution to derive the standard deviation, the asset-weighted result is not interpretable. We always advise that our verification clients replace the asset-weighted version with equal-weighted.

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You’ll remember that GIPS, unlike the AIMR-PPS, does not encourage it, and we reject it. When using it isn’t non-compliant, it isn’t a good approach. 2. Saying too much. By this After all having disclosures that simply aren’t needed. For instance, “negative disclosures.” For instance, while GIPS requires firms to disclose the use, level, etc. of leverage, derivatives, and shorts, if you don’t use them you don’t need to say anything.

Some companies may have the viewpoint that the more you disclose, the not as likely the chance will read, but that’s an exception, I really believe. Easier to drop some of these unnecessary claims and enlarge the font size. 3. Showing both firm resources and composite percent of strong possessions. 2, but it warrants its own recognition.

GIPS 1999 required companies to disclose amalgamated property, as well as firm assets and composite percent of the company: the truth is that if you have any two of you can get to the third, why require all three? The folks who worked on GIPS 2005 (I was one, incidentally) wisely decided to drop the requirement for all those three, and only require amalgamated EITHER and possessions firm or percent of the firm. Why clutter the data columns; they’re crowded enough?

We recommend showing firm assets because if you show percent, when you can reach firm it’s only an approximation and can be off by a good amount. 4. Not stating enough, by not including significant supplemental information. First, “supplemental information” is actually anything related to returns or risk that isn’t either required or recommended; for example, attribution results.

Firms may take great advantage of supplemental information to exceed the Standards and provide meaningful information to aid the firm’s performance. I’ll probably execute a piece on this later, as there are great opportunities here. 5. Not being verified. Granted, confirmation remains a choice, and we’ve come out strongly opposing it ever being mandated (and we believe this will never happen). That being said, there remain some firms who have chosen never to be confirmed; but why not? It’s an investment, like compliance just.