The Global Investment Performance Standards (GIPS®) were adopted by the CFA Institute in 1999 and are widely accepted among the international investment management industry. GIPS are a set of ethical principles based on a standardized, industry-wide approach that apply to investment management firms and are intended to serve prospective and existing clients of investment firms. While compliance by investment firms is voluntary, many investors consider GIPS compliance to be a requirement for doing business with an investment manager. Alternative managers have lagged behind the industry in claiming compliance with GIPS, but changes in the industry suggest GIPS compliance is becomingly increasingly important.
On the CFA Institute Market Integrity Insights blog, Beth Kaiser identifies two reasons GIPS compliance is becoming increasingly important, specifically for alternative investment managers. One driver is that alternative strategies are becoming increasingly mainstream and investors and consultants are engaging in more comprehensive due diligence. Compliance with GIPS can help managers to stand out amongst their peers. Furthermore, the issuance of the GIPS Guidance Statement on Alternative Investment Strategies in 2012 makes it easier for alternative investment managers to comply.
The GIPS Guidance Statement on Alternative Strategies and Structures specifically addresses compliance for hedge funds and other alternative investment strategies. GIPS standards state that portfolios must be valued in accordance with the definition of fair value and that all investments, regardless of liquidity, must have valuations that adhere to the definition of fair value. In addition, firms are to disclose if pricing has been performed internally and not by an external third party.
At the 2015 GIPS Annual Conference, it was revealed that the California Public Employees’ Retirement System (CalPERS) inquires of all investment managers, including alternative investment managers, seeking to do business with them whether they are GIPS-compliant. The position of CalPERS in the industry suggests that managers will take the steps necessary to win its business and that GIPS-compliance is quickly becoming the norm for investment managers.
Related Links
- Portfolio Valuation – Private Equity Marks & Trends
- Updated: Valuation Best Practices for Venture Capital and Private Equity Funds
- Rules for the Modern Investment Manager
Mercer Capital’s Financial Reporting Blog
Mercer Capital monitors the latest financial reporting news relevant to CFOs and financial managers. The Financial Reporting Blog is updated weekly. Follow us on Twitter at @MercerFairValue.
