The introduction of GIPS doesn't mean that firms can't show prospects performance results; granted, GIPS is considered "best practice" within our industry, but there can be a variety of reasons why a firm isn't able to comply. And so, what can they do? Here are three approaches:
- Hypothetical or model results. With this option, the firm doesn't use real portfolios but a model portfolio to represent their strategy. This would be the least attractive option, but is permitted. Adequate disclosures are needed. (Steve Stone and I wrote an article on this topic for the CFA Institute, which you might find of value).
- A representative portfolio. This is probably more attractive than a model, but less attractive overall, because it suggests "cherry picking," and you'd also have to deal with cases where an account may terminate. However, it's an option nonetheless. It would require appropriate disclosures as to what the returns represent.
- A composite of all accounts in the strategy. This could be just like what GIPS requires (e.g., asset-weighted returns) or not completely (e.g., to use equal-weighted returns). This is preferable to the other two options shown (but obviously not as preferable as GIPS compliance), and will require your rules for composite construction to be identified, and preferably written down. Some form of disclosures would be needed, but perhaps not as many as the other options.
Oh, and when it comes to firms that fall under their country's regulator(s) (e.g., the Securities and Exchange Commission (SEC)): you will want to ensure that your materials conform with their rules, just as GIPS requires.