GIPS2020 Changes Series – #8 Asset Owner Fundamentals of Compliance

Overview

The Fundamentals of Compliance section for Asset Owners is the eighth section of the GIPS 2020 Exposure Draft.

The five (5) Asset Owner sections of the GIPS 2020 are a completely new set of Standards for Asset Owners complying with the GIPS Standards. And in addition to this first section on Fundamentals of Compliance, includes sections on Input Data and Calculation Methodology, Composite Maintenance, Total Fund & Composite Time-Weighted Return Report and Additional Composite Money-Weighted Return Report.

This means that Asset Owners no longer have to improvise by modifying the Firm Standards (list of firm standards with links) to suit their situation as was with the 2010 edition. But with the 2020 edition of the GIPS, Asset Owners only need to refer to their sections to get specific Standards and their application to their situation.

That does not mean the Standards for Asset Owners are completely different from that for Firms though, because except in some few areas where application of the Standards are peculiar to Asset Owners, the Standards, terms and their application are pretty much the same for Asset Owners and Firms, so it is not a steep learning curve.

So in these Asset Owner section posts, we outline the key differences in each section between the Asset Owner Standards for that section and the Firm Standards for that section without rehashing the same points already covered in the related Firm section post.

Key Standards Worth Noting

The key Standards to note compared to the Firm Fundamentals of Compliance section are:

1. The first one here is how the Asset Owner must be defined – here the Asset Owner must be defined as an ‘entity that manages investments directly or indirectly using External Managers on behalf of beneficiaries, participants or the organization itself’ (8.A.2).

2. The next is who Asset Owners must provide GIPS Asset Owner Reports to, and in this case, this will be ‘those with direct oversight responsibility for the Total Fund and Total Asset Owner Assets’ (8.A.10a), although they may also provide them to those with indirect fiduciary role, such as regulators (8.A.11).

3. Asset Owners can prepare GIPS Reports at both Total Fund level and Composite levels, similar to the Pooled Fund and Composite levels for Firms (8.A.16).

4. Another difference here is that Asset Owners who compete for business through marketing for Prospective Clients must use the Firm Standards instead of the Asset Owner Standards and must define the part of the business that competes for business differently from the part that doesn’t (8.A.24).

5. Two key terms to note here are Total Fund, representing one of the funds that the Asset Owner manages and Total Asset Owner Assets, representing all discretionary and non-discretionary assets managed by the Asset Owner.

6. The use of the term External Manager to represent a similar concept in Firm Standards of Sub-Advisor (8.A.2).

7. The last noteworthy difference here is the choice that Asset Owners have between whether to use Time-Weighted Returns or Money-Weighted Returns for additional Composites they choose to present (8.A.26) but can only present Time-Weighted Returns for Total Funds (8.4.25).

Comments Requiring Feedback

Three comments require your feedback in this section:

1. Whether the frequency of updates of GIPS Asset Owner Reports is adequate. These are the same set of questions like that for Firms (Comment #31).

2. The next question relates to the Standard requiring that Asset Owners that compete for business should be defined separately and must use Firm Standards. The question here is whether this distinction should be continued (Comment #32).

3. The third and last comment request here is whether Asset Owners should be allowed to choose the returns they want to present for additional Composites (Comment #33).

How to Send in Your Comments

We have made it easy for you to go through the comments in bite-sizes and to submit your responses quickly by completing comment survey forms covering the feedback areas requested and more. At the end of the commenting period (December 31, 2018), we will compile all the comments received and forward to the GIPS Organization for review.

Sign-up for free on our Composite Insider platform here to do so.

Alternatively, you can send your written responses to the GIPS Organization.

In the next post, we review the Asset Owner Input Data & Calculation Methodology section.

2018-12-27T10:24:01+00:00

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