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  1. 1. Global Investment Performance Standards (GIPS®) The Global Passport for Asset Managers Yoh Kuwabara Presentation to: Asian Security Analysts Federation 8 November 2006 Seoul, South Korea GIPS Executive Committee Verification/Practitioner Subcommittee Chair Director, Misuzu Audit Corporation
  2. 2. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>
  3. 3. GIPS Objectives Ethical framework Full disclosure Fair presentation Uniformity in reporting Representation of performance Global comparability Accurate and consistent data
  4. 4. 1. Background <ul><li>Fraudulent presentation of investment performance </li></ul><ul><li>Cherry picking </li></ul><ul><li>‘ Apple to Orange’ Comparison </li></ul><ul><li>Insufficient, misleading disclosure </li></ul>‘ They had been able before we hired them!?’
  5. 5. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>
  6. 6. 2. History <ul><li>Pre-GIPS Era </li></ul><ul><li>GIPS1999 </li></ul><ul><li>Introducing CVG/TG </li></ul><ul><li>GIPS2005 </li></ul><ul><li>Status Quo – September 2006 </li></ul>
  7. 7. 2-A) Pre-GIPS Era <ul><li>1987:‘Performance Presentation Standards’ established for USA and Canada—1993:Revised to ‘AIMR-PPS’ </li></ul><ul><li>Several countries followed suit </li></ul>1992: ‘The Pension Fund Investment Performance Code’ (UK) 1997: SPPS (Switzerland) 1998: DVFA Standards (Germany) 1998: AIPMPS (Australia) 1998: VBA-PPS (Netherlands) 1999: SAAJ-IPS (Japan)
  8. 8. 2-B) GIPS1999 <ul><li>1995: EFFAS Permanent Commission on Performance Measurement advocated need for a global standard </li></ul><ul><li>1995:AIMR-PPS Global Implementation Committee established </li></ul><ul><li>1998: Exposure Draft of GIPS released for public comment </li></ul><ul><li>1999: GIPS finalized (February) </li></ul>
  9. 9. 2-C) Introducing CVG/TG <ul><li>2000: ‘GIPS Adoption at Country Level’ introduced IPC endorsement of CVG and TG </li></ul><ul><li>Countries introduced CVGs: Australia, Ireland, Italy, Japan, South Africa, Switzerland, UK, USA/Canada </li></ul>CVG: Country Version of GIPS. Minimum addition to GIPS based on country specific laws/regulations and/or established practice is allowed TG: Translation of GIPS. No addition, no modification allowed except for a ‘wrapper’
  10. 10. 2-D) GIPS2005 <ul><li>Some ‘Recommendations’ upgraded to ‘Requirements’ </li></ul><ul><li>Added new provisions for Fees, Real Estate and Private Equity </li></ul><ul><li>Added as new provisions some essence of Guidance Statements </li></ul><ul><li>Added some global ‘best practices’ </li></ul><ul><li>Proposed ‘Convergence to GIPS of CVGs’ </li></ul>Effective: 1 January 2006
  11. 11. 2-E) Status Quo – Sept. ‘06 <ul><li>27 countries and/or regions adopted GIPS </li></ul>*: Republic of Palau, Republic of the Marshall Islands, Federated States of Micronesia, Commonwealth of the Northern Marianas Islands, Territory of Guam Norway Denmark USA/Canada Netherlands Belgium UK Luxembourg Austria Switzerland Liechtenstein Pacific Islands* Sweden Italy Singapore South Africa Ireland New Zealand Spain Hungary Japan Portugal Germany Hong Kong Poland France Australia
  12. 12. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>
  13. 13. 3. Contents <ul><li>Concept </li></ul><ul><li>GIPS Provisions </li></ul><ul><li>Key Requirements </li></ul><ul><li>Guidance Statements </li></ul><ul><li>Verification </li></ul>
  14. 14. 3-A) Concept <ul><li>Self-regulatory nature </li></ul><ul><li>Vision: </li></ul><ul><li>Fundamental principle: ‘Fair representation and full disclosure </li></ul>‘ A global investment performance standard leads to readily accepted presentations of investment performance that (1) present performance results that are readily comparable among investment management firms without regard to geographical location and (2) facilitate dialogue between investment managers and their prospective clients about the critical issues of how investment management firm achieved performance results and determines future investment strategies.’ (GIPS I. 5.)
  15. 15. 3-B) GIPS Provisions Provisions: 0. Fundamentals of Compliance 1. Input Data 2. Calculation Methodology 3. Composite Construction 4. Disclosures 5. Presentation and Reporting 6. Rea Estate 7. Private Equity Appendices: A: Sample GIPS-Compliant Presentation B: Sample List and Description of Composites C: GIPS Advertising Guidelines D: Private Equity Valuation Principles E: GIPS Glossary
  16. 16. 3-C) Key Requirements <ul><li>‘ Firmwide’ compliance(3.A.1) </li></ul><ul><li>‘ Composite’ performance(2.A.3) </li></ul><ul><li>Use of Time-weighted Rate of Return(2.A.2) </li></ul><ul><li>No simulated and/or back-tested return(3.A.8) </li></ul><ul><li>Minimum 5 years of compliant performance data(5.A.1.a) </li></ul><ul><li>All supporting data must be kept(1.A.1) </li></ul><ul><li>Document policies and procedures to establish and maintain compliance(0.A.6) </li></ul>
  17. 17. 3-C) Key Requirements-Cont’d <ul><li>Important policies must be defined by firms </li></ul><ul><li>Definition of the entity to claim compliance (FIRM) </li></ul><ul><li>Definition of ‘investment discretion’ </li></ul><ul><li>Definition of composites </li></ul>
  18. 18. 3-D) Guidance Statements *:Awaiting finalization Treatment of Significant Cash Flows (Portfolio Record Keeping)* Treatment of Carve-Out (Leverage and Derivatives)* Performance Record Portability (Error Correction)* Performance Examination Wrap Fee/SMA Portfolios Definition of the Firm Verifier Independence Country-Specific Taxation Issues Verification Composite Definition Use of Supplemental Information Calculation Methodology
  19. 19. 3-E) Verification <ul><li>A review by an independent third-party ‘verifier’ of investment management firm’s performance measurement processes and procedures. Verification tests: </li></ul><ul><li>‘ Not currently required but strongly encouraged (Section III) </li></ul><ul><li>Whether the firm has complied with all the composite construction requirements of the GIPS Standards on a firm-wide basis </li></ul><ul><li>Whether the firm’s processes and procedures are designed to calculate and present performance results in compliance with the GIPS Standards. </li></ul>
  20. 20. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>
  21. 21. 4. GIPS Organization <ul><li>Overview </li></ul><ul><li>GIPS Executive Committee </li></ul><ul><li>GIPS Country Sponsors </li></ul><ul><li>GIPS Council </li></ul><ul><li>RIPS </li></ul><ul><li>Subcommittees </li></ul><ul><li>Working Group </li></ul><ul><li>GIPS Secretariat </li></ul>
  22. 22. 4-A) Overview CFA Centre for Financial Market Integrity GIPS Executive Committee GIPS Council Standing Subcommittees Americas RIPS EMEA RIPS Asia-Pacific RIPS Investor/Consultants Promotion and Awareness Verification/Practitioner Investment Manager Interpretations
  23. 23. 4-B) GIPS Executive Committee <ul><li>Supreme decision-making body for GIPS matters </li></ul><ul><li>Comprising 9 members w/voting rights: </li></ul><ul><li>Can create/amend GIPS Provision/Guidance Statements without CFA Institute Board approval </li></ul><ul><li>Annual reporting to CFA Institute Board Required </li></ul>+ EC Director (CFA Centre Director of IPS) Interpretations Subc. Chair (Karyn Vincent) EMEA RIPS Chair (Stefan Illmer) Verification/Practitioner Subc. Chair (Yoh Kuwabara) Asia-Pac RIPS Chair (Louis Boulanger) Investment Manager Subc. Chair (Sunette Mulder) Americas RIPS Chair (Todd Juillerat) Investor/Consultant Subc. Chair (Carol Kennedy) GIPS Council Chair (Hans-Joerg von Euw) Elected by CFA Institute Board: Elected by Country Sponsors:
  24. 24. 4-C) GIPS Country Sponsors <ul><li>Should sign Agreement with CFA Institute and EC </li></ul><ul><li>Should send representatives to RIPS and Council </li></ul><ul><li>Roles and responsibilities include: </li></ul><ul><li>Promoting GIPS within their countries </li></ul><ul><li>Being knowledgeable about and kept abreast of their domestic market and industry </li></ul><ul><li>Nominating people for Subcommittees </li></ul><ul><li>Submitting comments on exposure draft </li></ul>
  25. 25. 4-D) GIPS Council <ul><li>Established under GIPS EC </li></ul><ul><li>Comprising all GIPS Country Sponsors </li></ul><ul><li>Has subdivisions among 3 regions (RIPS: Americas, Asia-Pac, EMEA) </li></ul><ul><li>Council Chair has 1 voting right at the EC </li></ul><ul><li>Along with 3 RIPS Chairs, Country Sponsor representatives occupy 4 seats at the 9 member GIPS EC </li></ul>
  26. 26. 4-E) RIPS <ul><li>‘Regional Investment Performance Subcommittee’ </li></ul><ul><li>Established under GIPS Council, but Chair retains 1 voting right at GIPS EC </li></ul><ul><li>1 Each for Americas, Asia-Pac and EMEA </li></ul><ul><li>May have subcommittees and/or working groups underneath </li></ul>
  27. 27. 4-F) Subcommittees <ul><li>Major ‘stakeholders’ alongside Country Sponsors </li></ul><ul><li>Interpretations Subcommittee </li></ul><ul><li>Other technical subcommittees on specific topic/subject (e.g., Real Estate, Private Equity, Hedge Fund)-currently not existent </li></ul><ul><li>Investor/Consultants Subcommittee </li></ul><ul><li>Investment Manager Subcommittee </li></ul><ul><li>Verification/Practitioner Subcommittee </li></ul><ul><li>Promotion and Awareness Subcommittee </li></ul>
  28. 28. 4-G) Working Groups <ul><li>Intellectual Property Working Group </li></ul><ul><li>Process Working Group </li></ul><ul><li>Communication Task Force </li></ul>
  29. 29. 4-H) GIPS Secretariat <ul><li>Staff at CFA Centre </li></ul><ul><li>Support activities of EC(1), Council(1), RIPS(3), Subcommittees(5) and Working Groups(3) </li></ul><ul><li>Guardian of GIPS documents </li></ul><ul><li>Website Administrator </li></ul>
  30. 30. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>
  31. 31. 5. Initiatives <ul><li>Promote GIPS around the world </li></ul><ul><li>Upgrade GIPS to incorporate global best practices </li></ul>
  32. 32. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>
  33. 33. 6. Future Plan <ul><li>GIPS2010 – next overall revision and upgrade of GIPS </li></ul><ul><li>Subject of discussion may include: </li></ul>Mandating verification New Provisions for Hedge Fund New Provisions on after-tax performance
  34. 34. GIPS Presentation <ul><li>Background </li></ul><ul><li>History </li></ul><ul><li>Contents </li></ul><ul><li>Organization </li></ul><ul><li>Initiatives </li></ul><ul><li>Future Plan </li></ul><ul><li>Q & A </li></ul>