On 18 May, the Investment Performance Council (IPC) formally endorsed the local Irish standard (GIPS (Ireland) as the first ‘Country Version’ of the Global Investment Performance Standards (GIPS TM). This development is a critical milestone for several reasons. It marks the beginning of a process through which local standards can both endorse the GIPS standards and bring their standard-setting process into line with the global process. It encourages other countries to jump on board by becoming Country Versions of GIPS (or CVGs).
It is also a ringing endorsement of the massive efforts of more than 30 volunteers over a period of 15 months. These efforts have been focused on rolling out these global performance measurement and presentation standards to the global marketplace to with two key goals:
q To enable buyers of investment services to make hire decisions based on more complete and more consistent information and
q To enable investment management firms from around the world to compete for business on an equal footing.
GIPS were introduced in 1999 by the Association for Investment Management and Research as part of a global ethics initiative also covering soft dollars and analyst recommendations. GIPS adopts an ethical rather than a regulatory approach aimed in particular to ensure that performance presentations achieve fair representation and full disclosure. This approach is designed to achieve both a level playing field and to ensure apples-to-apples comparisons between investment management firms regardless of the country of domicile of the client or firm.

GIPS and the IPC
It was clear at the outset that managing a global standard was going to be a good deal more difficult that doing the same job locally. In order to achieve this, AIMR formed a global committee, the Investment Performance Council (IPC), consisting of 15 delegations and seven volunteer working sub-committees. Today, there are over 60 volunteers associated with the IPC and its various sub-committees representing 16 countries. These volunteers are invaluable in terms of promoting standards in their local markets and acting as catalysts for local adoption and support for GIPS and the IPC. AIMR and the IPC also works with 40 or so local sponsoring organisations (for example the National Association of Pension Funds in the UK).
Since GIPS came into effect in earnest at the beginning of last year there has been a tremendous amount of work done in building a framework for managing the standard globally. This framework is now firmly established and the IPC and its associated sub-committees are now busy dealing with the business of administering and promoting the standards world-wide. The agenda of the recent IPC meeting included three important firsts: the CVG approval for Ireland, the issuance of the first guidance statement on portability of investment returns and the release of the first sub-committee report on real estate. This substantial progress in little over a year sets the stage for further successes to come.

The GIPS passport
The goals and aspirations of GIPS are neatly illustrated by the notion of the GIPS passport, ie that GIPS-compliance provides firms with a ‘passport’ to market services around the world. This provides greater choice for investors and establishes and promotes best practice. However, for the GIPS passport to be effective, sponsors of all country standards must review local their local standards and remove or minimise potential ‘barriers to entry’ in the form of additional requirements, over and above those found in GIPS. This process of global harmonisation, is run by the IPC’s Country Standards Sub-committee (or CSSC), and is basically a process that through which individual countries are encouraged to implement GIPS as it stands or adapt existing local standards to become a CVG.
For countries that have not developed performance standards of their own, adopting GIPS is generally straightforward. The IPC strongly encourages those countries to accept GIPS as the local standard either in English (ie as is) or translated into the local language as a ‘Translation of GIPS’ (TG). A local standard can only claim to be a TG if there are no additions to the GIPS standards—a route strongly preferred by the IPC.
But in many developed institutional markets, (Japan, Germany, Switzerland, Australia, the Netherlands, UK and US), local standards already exist. Here it is often harder to initiate changes to established and recognised standards and achieving a commitment to align those standards to GIPS can be challenging. Here the CVG process comes into play. To be a CVG, 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 which are GIPS compliant will not be subject to a barrier to entry alongside firms which are compliant with the local standard. This right of access statement is a cornerstone of the GIPS passport.
Today, nearly 30 countries are at some stage of adoption or alignment to the GIPS standards and high percentages of investment firms around the world are either already compliant with the Standards or intend to be in the near future. The CVG endorsement for the Irish Standards was the first step in this important programme. Waiting in the wings for CVG status are the UK, and Swiss Investment Performance Standards Switzerland and the AIMR-PPS (New North American) Standards North America (AIMR-PPSTM). There are several applicants for TCG status too including Austria and Hungary. By the end of 2001, the IPC expects to have received submissions from 12 European country sponsors for endorsement.

Interpretive guidance on the GIPS standards
A key challenge in applying a global standards is ensuring a consistent understanding and application of those standards across multiple markets and disciplines. It is the job of the IPC’s interpretations sub-committee to ensure the integrity, consistency and applicability of the GIPS standards. In practical terms this means responding effectively to issues and questions raised by the global investment industry. Firms face challenges in applying the GIPS standards in different legal, structural and cultural frameworks and the sub-committee works to establish globally accepted best practices in this challenging environment.
Over the past year, the interpretations sub-committee developed a process for providing practical guidance for firms and professionals implementing GIPS. This process outlines the development of two forms of response, ‘Interpretations’ and ‘Guidance statements’, to deal with ‘new and novel’ issues which generally reach beyond the direct or straightforward application of the Standards. Interpretations are generally focused on specific questions or issues and are now posted to the growing GIPS Q&A database. Guidance statements are put together in cases where multiple interpretations are requested around a common subject such as the portability of manager returns or handling large cash flows. All new guidance statements are vetted for a period of public comment for a minimum of 60 days via the AIMR Web site at www.AIMR.org. A guidance statement on portability was approved at the May IPC meeting following just such a comment period and is now a formal GIPS position. The AIMR web-site itself has proven to be a most effective measure for communicating with the industry at-large. The interpretations sub-committee has posted several proposed guidance statements for public comment and AIMR is likely to continue to use the web as a medium for distribution of proposed and approved guidance—so keep an eye out for regular updates and new material.

Where next?
GIPS initially focused on liquid asset classes (equities, bonds and cash) and deliberately avoided raising the bar so high that countries with developing markets would be unable to participate. The development strategy for the GIPS standards now includes extending the coverage to other asset classes (particularly real estate and venture capital) and adding requirements and recommendations on other issues such as derivatives and fees.
The real estate sub-committee along with the IPC recently published proposed GIPS provisions to apply to real estate assets. As with all the major proposals relating to the development and application of GIPS, AIMR and the IPC are seeking public input on the proposal and have requested comments on the provisions (located on the AIMR web site) on or before are available for a period of public comment through December 31, 2001.
The IPC will continue to develop and evolve GIPS as quickly as is practicable into a ‘gold standard’ to be used around the world. The aim of the gold standard is to reflect best practice across the world and incorporate views being established today on areas such as venture capital, real estate, fee-impacts and risk. This gold standard will, we believe, 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 has many issues to consider. It needs to carefully determine how GIPS develops, consider convergence issues (ie across markets) and evaluate the costs for investment firms attempting compliance. The future provides many challenges in implementing GIPS and there is much to do. But the progress made to date and the enthusiasm and commitment of the players involved makes for a most encouraging start.
John Stannard, is chair, Investment Performance Council in London and Alecia Licata is Associate, Professional Standards & Advocacy, at AIMR in Charlottesville

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