Thursday, July 12, 2012

Benchmarks & the GIPS standards

We have gotten a series of questions lately regarding the inclusion of benchmarks in a GIPS(R) (Global Investment Performance Standards) presentation. I'll summarize some of it here.

Secondary benchmarks: can a firm show additional benchmarks along with their primary? Yes! But you must make it clear which is the primary.

Absolute benchmarks: can these be included in a presentation? Absolutely! In some cases an absolute benchmark would be the ideal one. If it is actually a secondary one (which is the case with one of The Spaulding Group's verification clients), the primary has to be identified. In addition, details regarding the absolute need to be included, as appropriate, so the reader understands what it represents and how it's constructed.

Reference benchmarks: in some cases firms show benchmarks which don't align with the actual composite's strategy, but rather for reference purposes. Can these be shown and must they be flagged as being "supplemental"? First, yes, they can be shown. Second, no, they aren't supplemental.

The GIPS glossary defines a benchmark as:

And so, a reference benchmark clearly matches the definition, and neither warrants nor requires the "supplemental information" disclosure, since it's not supplemental. Again, clarity is needed to ensure the benchmark's role is clear.

Have additional thoughts, insights, ideas, or questions? Please chime in!

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