Overview
Global Investment Performance Standards (GIPS®) are voluntary, industry-wide ethical standards that provide investment managers a consistent, transparent way to calculate and present historical investment performance. Created and maintained by the CFA Institute, GIPS are intended to promote fair representation and full disclosure so investors can compare managers and trust reported results.
Key takeaways
– GIPS create a common methodology for performance calculation and presentation across markets and firms.
– They are voluntary, but widely adopted by large asset managers and in multiple jurisdictions.
– Key aspects include firm definition, composite construction, calculation methodology, disclosures and the option for third‑party verification.
– Adopting GIPS improves credibility and comparability; investors should ask for a GIPS-compliant presentation and verification report when evaluating managers.
Why GIPS matter
– Comparability: Standardized rules reduce differences caused by varying local practices and help investors compare performance across firms and countries.
– Transparency: GIPS require specific disclosures about fees, composites, valuation policies and other items that affect returns.
– Credibility: Claiming GIPS compliance—and especially having an independent verification—can signal better governance and controls over performance reporting.
How GIPS work (core principles)
GIPS are a set of requirements and recommended practices organized around a firm applying the standards firm-wide and for each composite (group of similar accounts). Major elements include
• Firm definition: GIPS apply to the investment firm, defined as the distinct business entity that manages assets and presents performance.
– Firm-wide application: GIPS compliance is an all-or-nothing claim for the firm; if a firm claims compliance, it must comply for all relevant discretionary portfolios and composites.
– Composite construction: All similar discretionary portfolios must be grouped into composites that fairly represent the firm’s strategies. Composites are the primary vehicle for presenting performance to prospective clients.
– Performance calculation methods: GIPS require consistent, sound calculation methods (for example, time-weighted returns are commonly required for composites to neutralize cash flows between client accounts).
– Valuation and fair value: Assets must be valued according to consistent policies and, where applicable, fair value adjustments must be documented.
– Fee and expense treatment: Reports must clearly state whether reported returns are gross or net of fees and how fees and expenses are treated.
– Disclosures and required presentations: GIPS specify what must be disclosed in performance presentations (composite descriptions, benchmark used, internal dispersion, significant events, etc.).
– Verification: Independent third-party verification is optional but recommended; verification assesses whether the firm has complied with all composite construction and performance presentation requirements over the verification period.
– Record retention: Firms must keep records that substantiate performance, composite membership, and the policies that guided the presentations.
History and governance
– Origin: The predecessor was the AIMR–PPS (Association for Investment Management and Research–Performance Presentation Standards), introduced in 1987 for the U.S. and Canada.
– Globalization: In 1999 the CFA Institute (formerly AIMR) published the first GIPS as an international standard. Subsequent revisions harmonized and expanded the rules.
– Most recent major edition: The CFA Institute released the 2020 edition of the GIPS standards (effective Jan. 1, 2020). The standards are overseen by the CFA Institute and governed by a dedicated GIPS executive/standards committee.
– Adoption: GIPS are used broadly—by many of the largest global asset managers and in numerous markets worldwide.
Benefits and limitations
Benefits:
– Facilitates apples-to-apples comparisons.
– Improves transparency and investor confidence.
– May simplify cross-border business development for managers.
Limitations:
– Voluntary—firms can choose not to comply.
– Compliance does not guarantee investment skill; it only addresses how performance is calculated and presented.
– GIPS disclosure still requires investor diligence to understand strategy, risks, and context.
Practical steps for investment firms to adopt GIPS
1. Understand scope and commitment
• Decide to claim firm-wide compliance and commit senior leadership to the project.
• Review the latest GIPS handbook and CFA Institute guidance.
2. Perform a gap analysis
• Compare current policies, systems and reports with GIPS requirements (firm definition, composite rules, valuation, return calculations, disclosures, data retention).
• Identify gaps in data capture, valuation practices, composite definitions, and reporting templates.
3. Design or revise policies and procedures
• Formalize written policies for valuation, performance calculation (frequency, handling of external cash flows), composite construction, fee treatment and recordkeeping.
• Define the firm entity, list business units included/excluded, and decide how pooled funds and non-discretionary accounts are handled.
4. Build operational infrastructure
• Implement systems to capture daily valuations or cash flows if required, apply consistent return calculation engines (time-weighted returns for composites), and produce required disclosures.
• Create composite maintenance processes (additions/terminations, rebalancing rules, internal dispersion calculations).
5. Prepare historical reports
• Construct composites and calculate performance for each composite for the required history period.
• Draft the composite description, disclosures, benchmark comparisons and the firm’s GIPS compliant presentation.
6. Engage an independent verifier (recommended)
• Hire a qualified third party to perform GIPS verification. Verification tests whether the firm has complied with GIPS across processes and presentations over a defined period.
• If verified, obtain a verification report to include in presentations.
7. Implement governance and ongoing compliance
• Assign compliance responsibility, perform regular internal reviews, update policies when standards change, and retain documentation for the required retention period.
• Train staff who prepare performance results and client presentations.
8. Public presentation and marketing
• When marketing, include the GIPS composite presentation and, if available, the verification report. If not verified, clearly state that in materials.
Practical steps for investors using GIPS-compliant materials
1. Verify the claim
• Ask the manager to provide a GIPS composite presentation and the verification report (if they obtained verification).
• Confirm the scope of the verification and whether the claim covers the entire firm.
2. Review required disclosures
• Read disclosures about fee treatment (gross vs. net), benchmark choice and policy changes, significant events affecting performance, and how cash flows are handled.
3. Ask targeted questions
• How are composites constructed and how do my objectives map to applicable composites?
• Is the presentation audited/verified? What was the period covered by verification?
• How are fair value adjustments handled? How are wrap or bundled fees treated?
4. Use GIPS as a starting point
• GIPS improves comparability, but incorporate qualitative due diligence (investment process, people, risk controls) when making decisions.
Common misconceptions
– “GIPS guarantees superior performance.” No. GIPS only standardizes reporting and disclosure; it doesn’t judge investment skill.
– “GIPS compliance requires external verification.” No. Verification is optional, though recommended. Firms can claim compliance without a verification report but must state whether they’ve been verified.
– “GIPS are globally mandated.” No. GIPS are voluntary, not regulatory requirements, though some regulators reference or encourage them.
Resources and references
– CFA Institute — Global Investment Performance Standards (GIPS): / (official GIPS homepage and standards)
– CFA Institute — “CFA Institute Releases 2020 Global Investment Performance Standards (GIPS®)” (news release)
– Investopedia — “Global Investment Performance Standards (GIPS)” by Sydney Saporito
Final notes
GIPS are an important tool for improving transparency and comparability of historical investment performance. For firms, adopting GIPS requires disciplined policies, systems and governance. For investors, GIPS-compliant presentations and independent verification are useful signals—but should be combined with broader qualitative and quantitative due diligence when evaluating managers. If you’re considering adopting GIPS or evaluating a manager’s claim, consult the full CFA Institute GIPS materials or a specialist adviser for detailed implementation guidance.