The Global Investment Performance Standards (GIPS) are internationally recognized guidelines that promote transparency, accuracy, and comparability in investment performance reporting. Established to help investment management firms globally adhere to ethical practices, GIPS compliance ensures clients and investors access reliable and precise performance data. This guide covers the nine critical sections of the 2020 GIPS Standards, summarizing the key requirements and recommendations within each.

Section 1. Fundamentals of Compliance

The Fundamentals of Compliance set the essential prerequisites for GIPS adherence. This section mandates the accurate definition of an investment management firm, clear compliance procedures, and the firm’s foundational responsibilities. Understanding these foundational aspects is crucial to ensuring comprehensive compliance.

Section 2. Input Data

Input data addresses the standards for gathering and managing data necessary for performance reporting. As a crucial part of GIPS compliance, benchmarks, and composites must be established before performance outcomes (ex-ante). Consistent and accurate input data are vital to maintaining fair and comparable performance results across different periods and international borders.

Section 3. Calculation Methodology

Consistency is also paramount in calculation methodology, which prescribes how total returns are computed. Total returns include realized and unrealized gains or losses, accrued and actual interest, and dividends as of the ex-dividend date. Adherence to this consistent calculation method ensures uniformity and comparability in reporting.

Section 4. Composite Construction

Composite construction involves creating aggregates of portfolios that follow similar investment strategies or mandates. The primary rule here is that the performance of a composite must be calculated using the asset-weighted average of the performance of its included portfolios—ensuring representativeness and integrity of reported performance.

Section 5. Disclosures

The Disclosures section specifies the information firms must present to clients, giving context to the performance data provided. Mandatory disclosures include benchmarks, currency, composite descriptions, and the firm’s explicit claim of GIPS compliance. These disclosures typically remain constant and serve as essential elements in GIPS presentations.

Section 6. Presentation and Reporting

Presentation and reporting consolidate data and disclosures into compliant reports. The standards clearly define mandatory practices, such as prohibiting annualizing returns for periods shorter than one year. Ensuring accurate presentation and transparent reporting solidifies the firm’s adherence to GIPS.

Specialized Sections (7-9)

The final three sections address specific investment scenarios and supplement the general requirements.

Section 7. Real Estate

This section covers real estate investment requirements—explicitly excluding publicly traded real estate securities, commercial mortgage-backed securities (CMBS), and private debt investments from this category. Firms must understand and apply these specialized guidelines accordingly.

Section 8. Private Market Investments

Private market Investments specifically address private equity investments, excluding open-end or evergreen funds. Investments like venture capital, mezzanine financing, or Fund of Funds (FOF) are subject to specific valuation guidelines stipulated in the GIPS Private Equity Valuation Principles.

Section 9. Wrap Fee/Separately Managed Account (SMA) Portfolios

The Wrap Fee/SMA Portfolios section outlines compliance rules for bundled fee arrangements, covering comprehensive investment advisory, research, and brokerage services. Firms must comply with this section’s provisions when managing and reporting bundled service portfolios.

GIPS Compliance: Key to Transparency

Understanding these nine major sections of the GIPS Standards ensures that investment management firms report their performance transparently and comparably—reinforcing trust and consistency within the investment industry. A solid grasp of GIPS compliance helps firms align with industry best practices. For candidates preparing for the CFA Level 1 exam, mastering these sections’ general structure and major concepts is essential, although detailed memorization of all specifics is not required.

Explore the comprehensive resources available on the 365 Financial Analyst platform to build on this foundation and strengthen your grasp of GIPS concepts and others. By joining the platform, you’ll gain access to expert-led courses and practical tools that will reinforce your learning and keep you on track for CFA Level 1 success.

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