Transparent investment performance reporting for trust and transparency
CFA Institute released the 2020 Global Investment Performance Standards with an effective date of January 1, 2020, replacing the existing GIPS 2010 standards.
The 2020 GIPS standards aim to consolidate various GIPS guidance issued in past, to better accommodate the needs of managers of pooled funds, alternative investments and high-net-worth clients, to better address applicability for asset owners, and to further improve GIPS reporting.
The 2020 GIPS standards introduce three separate frameworks for (1) Firms, (2) Asset Owners and (3) Verifiers, and enhance the performance reporting specifically for pooled funds and for presentation of money-weighted returns.
1. Fundamentals of compliance
21. Fundamentals of compliance
- Performance examination
4. TWR report
Asset owner reports:
24. Total fund and composite TWR report
Pooled fund reports:
6. TWR report
8. Advertising Guidelines:
- Limited distribution pooled fund
- Broad distribution pooled fund
26. Advertising Guidelines
The 2020 GIPS standards introduce tailored concepts to better reflect the peculiarities of segregated portfolios vs. pooled funds.
Firms need to consider what is being offered:
Composite (grouping of portfolios with comparable investment strategy): Firm sells an investment strategy to a client (who may opt to invest either through a segregated portfolio or a pooled fund)
Broad distribution pooled fund (BDPF): Firm sells participation in a specific fund. Typically, no direct contact between the firm and the pooled fund investor. Regulated under a framework that would permit the general public to purchase or hold the pooled fund’s shares. Not exclusively offered in one-on-one presentations.
Limited distribution pooled fund (LDPF): Firm sells participation in a specific fund – any pooled fund that is not a BDPF
The 2020 GIPS standards expand the flexibility to use money-weighted returns:
Historically, firms were required to present time-weighted returns (TWR), except for specific cases of Private Equity and Real Estate
Now firms may choose to present MWR (e.g. 'Since Inception IRR' or 'Since Inception Modified Dietz') instead of TWR for the composite or pooled fund if:
GIPS reports that present MWR are required to:
Depending on the nature of the investment portfolio being managed, the 2020 GIPS standards provide a larger number of options for performance reporting.
|Time-Weighted Return (TWR)||Money-Weighted Return (MWR)|
|Composite||Composite TWR report||Composite MWR report|
|Limited distribution pooled fund (LDPF)||- Pooled fund TWR report
- Optional: Composite TWR report*
|- Pooled fund MWR report
- Optional: Composite MWR report*
|Broad distribution pooled fund
-Optional: Advertising Guidelines
-Optional: Pooled fund TWR report or composite report*
|Asset owner||- Total fund TWR report
- Optional: Composite TWR report
|Optional: Composite MWR report|
* Composites and pooled funds may present either gross or net returns, or both
The new guidelines expand options for referencing a firm’s claim of compliance with the GIPS standards.
The 2020 GIPS standards provide a dedicated framework for asset owners who manage their proprietary assets.
Guidance that verifiers must follow when conducting verifications and performance examinations. In addition, verifiers may also follow further professional guidance.
Leader Investor Trust Services, PwC Switzerland
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Investor Trust Services, PwC Switzerland
Tel: +41 58 792 2269