In April 1999 the US Association for Investment Management and Research (AIMR) sponsored and published the Global Investment Performance Standards (GIPS®) Global Investment Performance Standards (GIPS) to meet the needs of the globalised investment management industry. As financial markets and investment management firms become increasingly global in nature, the variety of financial entities and the number of countries involved in this globalisation demonstrate the need to standardise the calculation and presentation of investment performance. Many developed countries asked to participate with AIMR in this effort. Encouraging investment managers to adhere to globally accepted performance presentation standards will help to assure investors that the performance information they base decisions on is both complete and fairly presented as well as readily comparable without regard to geographic location.
AIMR’s goal in developing these standards is to establish GIPS as the recognised performance standard around the world and for GIPS to become a firm’s ‘passport’ to market services globally. In an effort to meet this goal, the Investment Performance Council (IPC), the global body responsible for administering GIPS, has established working processes, committee structures and reporting relationships to support the development. To date, the IPC has successfully received submissions from approximately 20 countries that wish to embrace the GIPS standards and expects to receive an additional 10 submissions by June 2003.
Administering a voluntary standard in a self-regulatory environment poses interesting governance and promulgation issues. The IPC has determined to approach the future management and development of the GIPS standards in a three-fold process:
o endorsements of Country Versions of GIPS and Translations of GIPS;
o extensions of GIPS into Additional Asset Classes/Technical Areas and Interpretive Guidance;
o evolving GIPS into a ‘Gold’ Standard; and

Country versions
The goal of the IPC is to establish GIPS as the recognised performance standard around the world and for GIPS to become a firm’s ‘passport’ to market services globally.
For countries that have not developed performance standards of their own, adopting GIPS is generally straightforward. However, in the more developed institutional markets, local standards already exist (eg, Australia, Germany, Japan, Switzerland, the UK, and the US). In these situations it can be harder to initiate changes to established and recognised standards and aligning those standards to GIPS can be challenging.
The IPC formed the Country Standards Sub-committee (CSSC) to develop a strategy for converging local standards with GIPS. This sub-committee has defined a process through which a local standard can be endorsed by the IPC as a Translation of GIPS (TG) or as a Country Version of GIPS (CVG). To achieve CVG status, local standards must contain the whole of GIPS and contain very limited additions (which must be based on local regulations or widely established local best practice). They must also include a ‘right of access’ statement ensuring that firms that are GIPS compliant will not be subject to a barrier to entry alongside firms that are ccompliant with the local CVG.
Each CVG submission goes through a rigorous review to ensure there are no unnecessary additions. If there are any differences that cannot be justified on the basis of regulatory requirements or long-standing tradition, the local sponsor must additionally provide a transition plan for eliminating the differences. The CSSC often takes on a consultative role to help local country sponsors identify problematic areas and provide assistance in the submission process.
While some local country sponsors choose to simply adopt GIPS in English, other sponsors have chosen to translate GIPS into their local language. The CSSC carefully reviews each TG submission, checking reverse translations for consistency and accuracy.
The IPC has currently endorsed CVGs of GIPS for Ireland, Switzerland, Italy, Australia, Japan, and of course the UK, US and Canada. Also endorsed are TGs (verbatim pure translation copies of translations of GIPS into a foreign language) for Hungary, Austria, Norway, Denmark, the Netherlands, and France and the English version of GIPS for New Zealand. Each of these 14 approved country or regional versions of GIPS and the additional five that are being worked onothers soon to be submitted, are sponsored by local organisations that commit to administer the local GIPS standard, to adopt any changes to GIPS made by the IPC, and to abide by any interpretations or additions to GIPS produced by the IPC. The IPC expects up to 10 more countries to submit versions of GIPS for endorsement in 2003.
In order for a version to be endorsed by the IPC the local sponsoring organisation has to commit to administer their version to adopt any changes to GIPS made by the IPC as well as abide by any interpretations or additions to GIPS produced by the IPC. The IPC and its sub-committees have transparent member nomination procedures and also submit these changes, interpretations, and additions to the GIPS standards to the industry and the general public for their comments, by posting any new proposals on their website at: http: //www.aimr.org/standards/issues /index.html.
In addition to this public comment section on their website, AIMR has a dedicated Investment Performance Standards section for education, transparency and industry involvement in the GIPS administration process.
Additional asset classes
The IPC created five sub-committees to expand the GIPS standards to address additional asset classes (such as real estate and venture capital) as well as technical areas not yet addressed by the standards (such as fees, leverage and advertising). These sub-committees are working to develop provisions and guidance to expand GIPS to address specific aspects of investment performance. Once developed, these proposals will be incorporated into the IPC’s evolution process to expand the GIPS standards.
Currently, some important examples of the work of these sub-committees are the proposed venture capital and private equity provisions (http:// www.aimr.org/pdf/standards/venture_capital.pdf), open for public comment until 31 March this year. The proposed leverage and derivatives provisions and guidance (http://www. aimr.org/pdf/standards/leverage_derivatives.pdf ), are open for public comment until 30 April.
In order to maintain relevance to the current global marketplace, the GIPS standards are continually updated through interpretations, guidance statements, and new provisions provided by the interpretations sub-committee. The remit of the IPC Interpretations Sub-committee is to ensure the integrity, consistency, and applicability of GIPS by providing guidance on practical issues and clarifying areas of confusion. This is accomplished by identifying key issues on which to provide proactive guidance, and answering questions raised by the global investment industry as firms face challenges in applying the GIPS standards in different legal, structural and cultural frameworks.
As part of the CVG and TG submission process, local country sponsors must agree to accept the IPC’s interpretations and avoid issuing their own. This helps ensure consistency of interpretative guidance across all markets.
The IPC has agreed to follow an evolutionary approach for the development of GIPS which involves a strategy of not introducing major changes to GIPS before January 2005. This is to maintain a sensible balance between moving the GIPS standards forward and avoiding undue disruption to firms that are, or are in the process of, claiming compliance.
The IPC has carefully considered the evolution of the GIPS standards, which initially focused on liquid asset classes, such as equities, fixed income and cash, and deliberately avoided raising the bar so high that countries with developing markets (and the firms within these countries) would be unable to participate. The development strategy for the GIPS standards now includes extending the coverage to other less liquid asset classes and adding requirements and recommendations on other issues such as derivatives and fees (as mentioned above).
Recognising that the investment industry is constantly evolving and that the GIPS standards must be flexible to remain effective, the IPC has identified several key steps in the evolution plan of the ‘gold’ standards. The first is the incorporation of the sub-committee proposals that will address the additional asset classes and technical areas that have not yet been addressed by the GIPS standards. As part of the evolution to the ‘gold standard’, guidance from the IPC approved guidance statements will be formalised into provisions and new provisions will be introduced based on global ‘local best practice’.
The IPC has commissioned the Country Standards sub-committee (CSSC) to develop an action plan and coordinate the process by which the GIPS standards will evolve to the gold standards, consulting with the industry to determine whether there are additional requirements and/or recommendations that should be included in the GIPS standards in the future. The CSSC will also review all of the provisions that are currently recommended in the GIPS standards and determine whether each of the current GIPS recommendations should be upgraded. Additionally, the CSSC will clarify the current wording of GIPS with particular focus on how will translate into foreign language versions of the Standards.
The IPC anticipates that all changes and additions to GIPS will be identified and agreed by 1 January 2005. At this point a second, upgraded edition of GIPS will be adopted. The result of the upgraded, or gold, GIPS standards will be to promote the highest quality and most stringent performance presentation and measurement practices and contribute to the elimination of the need for separate local standards.
The IPC also expects that the large majority of counties will subscribe to GIPS before 2005. Changes to GIPS are deliberately being avoided in the run-up to 2005, as it would be problematic to move the target until GIPS are implemented in all or most markets.
Over the past few years, a tremendous amount has been achieved to establish GIPS as the performance standards recognised around the world. In only a short time frame, most of the developed world has adopted GIPS, a progressive administrative structure has been empowered, and a path for evolution and renewal has been instituted.
James Hollis is managing director of Cutter Associates and chair of the Investment Performance Council of Association for Investment Management and Research

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