The European investment management market is looking to follow its US counterpart by adopting variations of the recently proposed global investment performance standards (GIPS) framework. This is a blueprint for measuring the performance of investment fund managers on an even scale around the world.
GIPS will require investment managers to show a minimum of five years of performance history and to use recognised calculation and presentation methods in doing so. These will include all actual, fee-paying, discretionary portfolios in groups defined according to similar strategy and/or investment objective, as well as certain other disclosures about the firm.
GIPS will also necessitate integrity and accuracy in the input data used in these presentations, ensuring that benchmarks and composites are selected on an ex ante basis, not after the fact. Firms will be required to comply with local or country-specific regulations in the event of conflict with GIPS. Firms meeting all the voluntary requirements of GIPS will be able to print a compliance statement on future presentations to investors.
Sponsored by the US-based Association for Investment Management and Research (AIMR) and developed by an international committee including representatives from the European Federation of Financial Analyst Societies and the the UK's National Association of Pension Funds, GIPS aims to counter the variation in investment practices and regulation worldwide through the introduction of a single performance standard, which will enable investors to compare results globally and facilitate investment decisions.
John Stannard, managing director (UK) at Frank Russell in London and a member of the GIPS committee, believes the increasing globalisation of the investment market has created the need for such a framework: Maybe 10 years ago it was sufficient for most markets to be looking at their own needs without really having an international perspective. However, we all know that the investment business is becoming global very fast.
"Global organisations will be investing money and appointing managers to invest their money on an increasingly global scale in the future, so clearly they need to know when they look at a set of performance figures from one investment manager that these have a reasonable chance of being calculated on the same scale as the next investment manager.
" Overall, I think the introduction of the GIPS framework will lead to a coming together of the way the investment market approaches these matters, which can only be beneficial in our desire to raise ethical standards and practices across the board." Hugh Wheelan"