This week’s GIPS and Investment Performance term is ‘Benchmark‘.

In the GIPS standards, a ‘Benchmark’ is defined as:

A point of reference against which the COMPOSITE’s or POOLED FUNDS’s returns or risk are compared.

GIPS for Firms 2020 and GIPS for Asset Owners 2020 Glossary

Three Benchmark Facts

Three things to note about benchmarks when it comes to the GIPS standards are:

  1. Must be Appropriate – This means that it must reflect the objective or strategy of the associated Composite or Pooled Fund (Provision 1.A.18, 1.A.19, 21.A.15)
  2. Cannot be Price-Only – This means that your selected benchmark must incorporate all sources of returns in its calculations, that is, it must be a total return benchmark, and not just returns to capital or capital changes only (Provision 1.A.18, 1.A.19, 21.A.15)
  3. Explain Why if Not Provided – This means that if for any reason you believe there is no appropriate benchmark for the strategy or objective underlying the composite or Pooled Fund you are reporting, you must provide a disclosure to that effect in the accompanying disclosures section of the GIPS Report for the Composite (Provisions 4.C.31 and 5.C.30)