The tentacular reach of the GIPS standards

I was recently interviewed by Pensions & Investments ("Fiduciary delegation," July 22, 2013) regarding the appropriateness of expanding the Global Investment Performance Standards (GIPS(R)) to outsourcing firms: firms that provide investment services to pension funds (i.e., that make investment decisions on behalf of the fund). I explained that while the Standards perhaps should include some verbiage directed to this segment of the market, for the most part, what is required to comply is within the corpus of the Standards.

The interest in expanding into this sphere falls on the heels of the Standards' introduction of draft guidance for plan sponsors. Thus, we see the Standards expanding into more markets, which is a very good thing.

I've also been asked about the appropriateness of investment consultants claiming compliance. While doing so would only be valid when the consultant has total responsibility for the investment decisions, there are still opportunities for the sharing of some of the consultant's skills. In reality, the Universal Advisor Performance Standards (UAPS) may be more appropriate, since they don't require full discretion over client assets as GIPS does.

In our view, GIPS remains "best practice," regardless how you define that term. And where appropriate, it should be adopted.

I was recently in Sydney, Australia, where I taught our firm's Fundamentals of Investment Performance and Performance Attribution courses. I was disappointed to learn that GIPS has very little value in that market. This surprised me given the role the former Australian Investment Performance Standards (AIPS) had, prior to the convergence of all CVGs (Country Version of GIPS). It would be an interesting case study to discern why this market has decided to suspend the adoption of presentation standards: a future project, perhaps.