Global Investment Performance Standards (GIPS): Definition, Purpose, Role, And History

Global Investment Performance Standards (GIPS) serve as a cornerstone for ethical practices in the global investment management landscape. Established by the CFA Institute, these voluntary guidelines are embraced by investment managers worldwide. Their primary goal is to ensure transparent disclosure and fair representation of investment performance, providing investors with a consistent and standardized framework for evaluating the prowess of different firms.

The functionality of GIPS lies in their role as standardized, industry-wide ethical principles. These principles guide investment firms on the intricate process of calculating and presenting their investment results to prospective clients. While GIPS compliance is voluntary, its adoption simplifies the complexities of international business operations for investment firms. By eliminating the need for varied performance calculation measures across different countries, GIPS save valuable time and ensure a consistent and reliable approach.

Being “GIPS compliant” is not just a badge of honor; it significantly enhances the credibility of investment management companies, especially in markets beyond North America and Europe. GIPS compliance facilitates a direct and unbiased comparison of firms’ track records. It goes beyond eliminating survivorship biases, misrepresentations, and historical data omissions; it serves as a catalyst for investment firms to invest in robust internal risk-control mechanisms. This commitment sets the stage for long-term success, establishing a foundation of reliability and trustworthiness.

The roots of GIPS trace back to 1987 with the initiation of the Association for Investment Management and Research–Performance Presentation Standards (AIMR–PPS). Initially designed for U.S. and Canadian investment management firms, the need for a more globally applicable set of guidelines became apparent. In response, GIPS emerged in 1999, and a significant step was taken in 2005 with the approval of a revised version. This revision aimed to create a singular global standard for investment performance, replacing country-specific standards. The most recent update, released on June 30, 2019, became effective on Jan. 1, 2020, further solidifying the global relevance of GIPS.

According to the latest data from the CFA Institute, GIPS are not just confined to a few markets—they are employed in “more than 40 markets globally.” Moreover, a substantial 84 out of the top 100 asset management firms worldwide claim compliance with GIPS standards. These top 100 GIPS-compliant firms collectively manage assets exceeding US$50 trillion. This widespread acceptance underscores the profound impact of GIPS in shaping the practices and standards within the investment industry on a global scale.

In conclusion, Global Investment Performance Standards (GIPS) serve as a vital framework for investment managers, fostering transparency and fair representation of investment performance globally. As a set of voluntary guidelines, GIPS enable investors to compare firms, enhance credibility, and promote a standardized approach to performance calculation and presentation. While their voluntary nature allows flexibility, GIPS have become widely adopted, with top asset management firms recognizing their significance. The continuous evolution of GIPS reflects the commitment to addressing dynamic challenges in the ever-changing landscape of the investment industry.

GIPS aim to ensure transparent disclosure and fair representation of investment performance globally, providing investors with a standardized basis for comparing firms.

Investment firms often choose GIPS compliance to enhance credibility, simplify international operations, and foster direct comparison of their performance with other firms.

No, GIPS compliance is voluntary. While not mandatory, adhering to these standards is widely adopted and recognized globally.

GIPS have evolved to address dynamic issues in the investment industry, including survivorship biases, misrepresentations, and historical data omissions.

The most recent version of GIPS was released on June 30, 2019, and became effective on Jan. 1, 2020.