Rachel Oliver reports on the move towards a global measurement standard
The Association of Investment Management Research (AIMR) will soon be releasing the first documentation of a proposed global performance measurement standard agreed in conjunction with the European Federation of Financial Analysts' Societies (EFAS).
The proposal is expected to be welcomed by the investment management and institutional investor community and could mark a significant change to the marketing of cross-border funds, notably implementing a 'level playing field' whereby fund managers have to adhere to the same guidelines when measuring their fund's performance.
European efforts to establish a global standard have been spearheaded by Dugald Eadie, chief executive officer of Henderson Investors in London, and chairman of EFAS. EFAS currently has 17 member countries and includes fund managers such as Deutsche Morgan Grenfell, SBC, Société Générale, Unibank and Schroders.
EFAS has been working with AIMR to develop an agreed set of ethical, commercial and technical guidelines which will define what will be known as the global investment performance standard (GIPS) which is expected to become active in 2000. The new standard will have some similarity with current AIMR standards because of its origins", says Eadie, though he stresses it has already received prior approval by a global committee. AIMR is even considering publishing the proposal in five languages to promote the fact that the proposed standard will be globally thinking and not just an adaptation of the US version.
Currently, there are varying methods to calculate performance numbers which can add to the confusion when comparing funds - for example some funds' performance numbers are quoted gross of fees.
"There are differences in calculating the numbers - if you take a pooled fund, you have a bid offer spread, a fund management fee, fees going in the funds and different investment strategies, some aggressive, some less aggressive," explains Nigel O'Sullivan, partner at Bacon & Woodrow in London.
As a result, pooled fund investors can often be presented with a set of figures which the fund manager hascalculated in such a way as to show the fund in its best light.
"Every fund manager you ask will quote you their track record which will be above average which obviously doesn't stack up," says O'Sullivan.
"The importance is to try and establish a database of information source whereby you can get data that you can compare that has been compliant with some standard - that you can pick it up and know that it is going to be on a consistent basis."
The existence of the WM Company and Combined Actuarial Performance Services, otherwise known as CAPS, has prevented distorted figures from becoming an issue in the UK, but as Eadie points out, it is one of the few markets in Europe which has that level of self regulation. "The UK is actually quite disciplined there compared to other places."
He continues: "The situation in Europe is that there are very few countries where performance measurement really exists and certainly not very many where there is any standards," he says.
Following its publication, the fund management and investment management industry will be given approximately 18 months to review the paper and suggest any amendments before it is finally implemented. European institutional investors can then look forward to bearing witness to beauty parades which have to implement honesty as the only, if not preferred policy."