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Global Investment Performance Standards (GIPS)

Definition

The GIPS standards were created and formerly adopted by the CFA Institute in February 1999. The standards are used internationally by investment firms to present their performance in a fair and equitable manner that provides advantages for both clients and the firms themselves. A claim of GIPS compliance takes a significant amount of work by a firm to achieve. GIPS allows fair comparison amongst investment results across international markets so a client may make a fair and just comparison. In the CFA Institute's own words, "A firm's claim of compliance signifies, among other things, that the firm's performance measurement data inputs, processes, and return calculation methodology conform to the prescribed guidelines and that all of the firm's fee-paying discretionary portfolios have been assigned to a composite."

Using the term Global Investment Performance Standards (GIPS) :

When a pension fund investment manager is seeking a new international stock manager for one of its investment accounts, he tells his analyst to initially screen candidates for the search by including only firms that claim GIPS compliance on a firmwide basis. He said then he will compare performance track records, experience of the personnel and investment philosophy of the firms. He told the analyst that by focusing only on firms that claim GIPS compliance, he can be reasonably assured of getting a fair comparison between each firm's performance.

Pay Special Attention To :

Compliance with GIPS takes a significant amount of work and some investment firm's do not fully understand the requirements, may not know how to become fully compliant, or brazenly may claim compliance when they are in fact not. Therefore, you should inquire as to their methodology for GIPS compliance and if they use a third party to verify their claim of compliance.

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CFA Institute