The Future of GIPS® Series – Part #1
The Evolution of the GIPS Standards: Introducing GIPS 20:20
The Evolution of the GIPS Standards: Introducing GIPS 20:20 …the mission of the GIPS standards is for all asset managers to comply. To achieve this goal, the Standards should be as simple as possible to remove complexity and perceived barriers to compliance and ensure relevance to all asset classes and types of asset managers.
The Current State of Adoption and Compliance with The GIPS Standards
The Global Investment Performance Standards (GIPS) have come a long way from 1999 when they were formally adopted. The data from the 2016 compliance reporting figures (for 2015 annual period) showed that 1,608 firms globally, reported compliance with the GIPS. Out of this number, 86% of these firms reported that their claim of compliance had been verified. Additionally, out of the 1,467 firms that opted to disclose their organisational type, 1,453 (~99%) were asset managers and 14(~1%) were asset owners.
The compliance rate among the top 100 global asset managers who control over US$48.8 trillion (representing 61% of global assets under management of USD$80 trillion as at December 31, 2015) was 85%. This was up from the 74% compliance rate among the same group for the 2014 annual reporting period, as gathered from the 2014 Compliance Reporting Data.
These promising numbers coupled with the increasing number of formal country-level adoptions by the 39 various
demonstrate that the GIPS Organization is solidly on the path to achieving its mission to instil integrity and ethical practices within the global investment management industry through the use of these common standards for the measurement and presentation of investment performance information to prospective clients.
The Universal Acceptance Strategies
The GIPS Organization has sought to achieve its mission using a three-pronged ‘Universal Acceptance’ strategy focusing on:
- Universal Demand for Compliance by Asset Owners – Educating asset owners and all investors to demand compliance by the investment management firms they deal with;
- Universal Adoption by Investment Managers – Removing barriers to compliance to make the Standards universally applicable to all investment management firms and their practices;
- Universal Support from Regulators – Advocacy with regulators championed by the various country-level sponsors of the Standards to create enabling environments that encourage and enforce compliance.
The drive to achieve global acceptance and use of these standards, however, comes with a lot more work if the standards are to be universally applicable to all investment firms and investment management situations. The Standards are continuously being refined and clarified through the issuance of new Guidance Statements that expand certain areas of the Standards to clarify applicability in certain situations, as well as Q&A’s that shed additional light on how to deal with practical application issues that may arise during compliance.
The GIPS 20:20 Project
A lot of work has been done to harmonise and standardise practices over the years, and the GIPS Standards as they currently stand, have no peer. But a lot more remains to be done if the dream of Universal Demand, Adoption and Support is to become a reality. To help this along, the GIPS Standards and Manual are primed for a major overhaul under the GIPS Vision:2020 project as was shared during the keynote address at the 20th GIPS® Standards Conference by Carl Bacon, CIPM, chair of the GIPS Executive Committee and chair of StatPro Group plc, and Jonathan Boersma, CFA, executive director of Global Investment Performance Standards, CFA Institute, as well as in the GIPS Strategic Document.
To help this along, the GIPS Standards and Manual are up for a major overhaul under the GIPS 20:20 project as was shared during the keynote address at the 20th GIPS® Standards Conference by Carl Bacon, CIPM, chair of the GIPS Executive Committee and chair of StatPro Group plc, and Jonathan Boersma, CFA, executive director of Global Investment Performance Standards, CFA Institute, as well as in the GIPS Strategic Plan Document.
No Need to Wait for GIPS 20:20, it is already Underway!
But before you think of waiting for this ‘New Release’ before you consider adoption, let me quickly reassure you that these changes have already been underway through the various Guidance Statements and Q & A’s that are constantly being drafted, opened for commentary and adopted, including recent ones such as the Asset Owner Guidance Statement, the Pooled Fund Guidance Statement, and the Supplementary Information Guidance Statements.
What is expected in the year 2020 under the GIPS 20:20 project is the consolidation of all these documents into a well-structured, coherent and easy to follow Standards Manual, instead of the currently fragmented state it is in.
Towards Universal Demand, Adoption and Support by the Global Investment Industry
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What to Expect in our ‘Future of GIPS’ Post Series
In this Series of Posts about the Future of GIPS, we take a look at these proposed changes as outlined in the Strategic Plan and presented at the GIPS Conference and what they mean for compliant firms or firms considering compliance. We tackle such issues as:
- What Changes are expected and Why they are Needed
- How the Compliance Execution Process may Look like
- The current obstacles in the way of universal acceptance and use warranting these changes
In the next post, we take a look at the Key Changes that You Should Expect and Why they are Needed
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