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1GIPS:Learning Outcomes•Why GIPS created?•What parties the GIPS apply to and who is served?•Key Characteristics•Fundamental of Compliance•Construction of Composite•Firm Definition•presentation and reporting•GIPS vs. Local Regulations•Eight Major Sections of the GIPS•Verification2Why GIPS created?•GIPS is a set of ethical principles based on a standardized, industry‐wide approach. Investment firms can voluntarilyfollow GIPSin their presentation of historical investment results to prospective clients.GIPS seek to avoid misrepresentationsof performance.Misleading practicesincluded:•Representative accounts—showing a top‐performing portfolio as representative of firm’s results. •Survivorship bias—excluding weak performance accounts that have been terminated. •Varying time periods—showing performance for selected time periods with outstanding returns. 3Who is affected?Who can claim compliance?•Investment Management Firms intend to serve existing and prospective clients.Who benefits from compliance? •Investment management firm‐‐‐‐‐‐Allow clients to compare investment performance among investment firms more easily and have more confidence.•Clients and prospective clients‐‐‐‐get more fairly and complete information.4Key Characteristics•To claim compliance, an investment management firm must define its “firm,”and this definition should reflect the “distinct business entity”that is held out to clients and prospects as the investment firm. •GIPS are ethical standards for performance presentation which ensure fair representation of results and full disclosure. •Include all actual fee‐paying, discretionary portfoliosin compositesfor a minimum of five years or since firm or composite inception. After presenting five years of compliant data, the firm must addannual performance each year going forward up to a minimum of ten years.5Key Characteristics•There will be no partial complianceand only full compliance can be claimed. •For cases in which a local or country‐specific law or regulation conflicts with GIPS, follow the local law, but disclose the conflict. •Certain recommendations may become requirements in the future. •Supplemental private equity and real estate provisions, contained in the GIPS standards, are to be applied to those asset classes. 6Provision of GIPS1.Fundaments of compliance2.Input data3.Calculation methodology4.Composite construction5.Disclosure6.Presentation and reporting7.Real estate8.Private equity71.Fundamental of Compliance•Definition of the Firm—Requirements:1.To apply GIPS on a firm‐wide basis. 2.Firm must be defined as a distinct business unit. 3.Total firm assetsincludes total market value of discretionary and non‐discretionary assets, including fee‐paying and non‐fee‐paying assets. 4.Include asset performance of sub‐advisors, as long as the firm has discretion over sub‐advisor selection. 5.Changes its organization can’t alter historical compositeresults. 8Fundamental of Compliance•Claim of Compliance—Requirements:Once GIPS requirements have been met, the following compliance statement must be used: •[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®).2. There is no such thing as partial compliance. for example ..........except...prohibit: use the GIPS calculation methodologyprohibit:The performance of an single, existingclient calculated in accordance with GIPS. . . etc. unless a compliant firm is reporting the performance of an individual account to the client..9Fundamental of Compliance•Firm Fundamental Responsibilities—Requirements:1.Firms must provide a compliant presentation to allprospects(prospect must receive presentation within the previous 12 months). 2.Provide a composite listand composite descriptionto all prospects that make a request. List discontinuedcomposites for at least five years.3.When jointly marketingwith other firms, if one of the firms claims GIPS compliance, be sure it is clearly defined as separate from noncompliant firms. 4.Firms are encouraged to comply with recommendationsand must comply with all requirements. Be aware of updates, guidance statements, etc. 102. Input data•Portfolio valuations must be based on market value, not cost basis or book value.•Accrual accounting must be used for fixed income securitiesand all assets that accrue interest income. Market value must include accrued income.3. calculation methodologyall return must be calculated after the deductionof the actual trading expenseincurred during the period.114.Composite construction•A composite is a grouping of individual portfoliosrepresenting a similar investment strategy, objective, or mandate. Examples of possible composites are Large Capitalization GrowthStocks and Investment Grade Domestic Bonds. •Nondiscretionary portfolios are not permitted to included in a single firm’s composites.•Terminated portfolio must included in the historical returns of the appropriate composite up to the last full measurement pe