Tuesday, January 4, 2011

Is net-of-fee performance supplemental information?

One of the most confusing areas of GIPS(R) (Global Investment Performance Standards) is "supplemental information." Since firms are required to label this information, it's important to know what it is. In essence, it's any performance-related information that accompanies a GIPS presentation that is neither required nor recommended. For example, attribution results aren't required nor are they recommended, and so if a compliant firm decides to include an attribution report with their presentation, it would be considered "supplemental."

A colleague asked whether net-of-fee returns are supplemental. I must admit that I found the question to be a bit odd, but there actually is some logic to how this is arrived at. Paragraph 5.B.1 of the 2010 edition recommends that firms show gross-of-fee; it doesn't recommend net. Does this mean that net must be supplemental, since it's neither required nor recommended? In reality, the standards permit either and often refer to both (see, for example, ¶ 4.A.5 and ¶ 4.A.6).

While I can see the logic behind the question, there seems to be evidence that net-of-fee returns are not supplemental. I often suggest to clients that they use the sample presentations in the standards as templates for their use; and if we look at Appendix A (page 46) of the 2010 edition we find a sample that shows both gross- and net-of-fee returns. If net-of-fee were supplemental, it would be so indicated here.

The requirement is that firms must show either net- or gross-of-fee returns; they can show both or either. Neither is supplemental.


  1. Technically, net-of-fees returns fall under the category of "additional information," which is anything covered by the requirements and recommendations of GIPS.

    This topic (supplemental vs. additional information) comes up in the CIPM curriculum, as candidates are required to distinguish between the two concepts. I often use net-of-fees returns as an example. Suppose a firm is only showing gross-of-fee returns in the "main body" of its composite presentations, but includes net-of-fees returns as supplemental information (which, of course, must be clearly labeled). This is in conflict with the GIPS standards. The reasoning I use is that if you tell someone something is "supplemental information," you are essentially saying that the information is not really critical to look at, it was just thrown in as extra "stuff," so to speak. But, the requirements of GIPS say that the firm MUST include (clearly labeled) gross- or net-of-fees returns. The net-of-fees returns don't have to be shown given that the firm chose to show gross-of-fees returns. But including the net returns and labeling them as supplemental could be misleading to the reader of the presentation, in that the reader may infer that the information is not important to look at.

  2. Interesting points, John. The GIPS glossary defines "additional information" as "information that is required or recommended under the GIPS standards and is not considered supplemental information." One could have a "field day" with this expression, since what is it "additional" to, if it's "required"? It's probably contextual, as you have described here. Thanks!


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