The Investment Performance Council (IPC) is overseeing the global adoption of GIPS, a global standard to measure investment performance. In Europe though, the market is fragmented with countries using different methodologies. Converting these to GIPS will require considerable skill. John Stannard of Frank Russell in London and chairman of the IPC, says if the council is to meet its goal of introducing the standard within three years, it will have to exercise a flexible approach to Europe. In the US, the AIMR-PPS system is widely acknowledged and used but Europe lacks such consistency.
To lead Europe towards a single, global measure, the IPC has adopted what it calls a dual approach. In countries where there is no existing measurement, adoption will pose less of a problem as they will be encouraged to adopt GIPS as the local standard. For those countries with an existing standard, the IPC will try and persuade them to adopt what it calls a ‘country version’ of GIPS or CVG. The IPC has established a Country Standards Sub Committee that will help countries and organisations achieve CVG.
This approach should give countries a little flexibility by ensuring the standards include the fundamentals of GIPS while allowing for each country’s differences. The IPC recognises it’s not possible to apply a homogenous standard and that they will need to accommodate legal and regulatory differences, after-tax performance and real estate valuation, for example, on top of a core of GIPS’ fundamentals. The role of the country committee is to monitor each countries’ adoption of GIPS and to report back to the IPC when it feels the country is sufficiently compliant.
In the UK, the National Association for Pension Funds set up UK-IPS a system based on GIPS and in Germany and Switzerland have sytems set up by their banks. Otherwise, European countries are largely without a system approaching GIPS. This is not through a lack of enthusiasm according to Dugald Eadie, a former chairman of the European Investment Performance Committee. In Europe the will to adopt the system exists but for the smaller markets there are considerable costs in setting up the composites. The IPC has said it will monitor the costs and the difficulties of convergence.
A recent report by consultants PricewatehouseCoopers backs up Eadie. Those European investment managers surveyed intend to comply with GIPS, or the equivalent local standards, within the next two years. A quarter of the 100 European investment managers they surveyed are fully compliant, and this is up on last year’s figure. Europe still has some way to go to match the US where AIMR-PPS is used widely and where 75% of respondents in a similar survey of the US market said they comply with the PPS.
Pat Norris, a partner at PWC, says compliance is taking a little longer than expected in Europe with many who last year felt they would comply this year, failing. There are encouraging signs though and the report found a significant decline in the number of managers who intend complying with AIMR. In the States, AIMR-PPS remains more popular than GIPS and in Europe the reverse is true where participants feel GIPS are more