5:42 PM Global Investment Performance Standards(GIPS) o A set of ethical principles based on a standardized, industry-wide approach o Investment firms can voluntarily follow GIPS in their presentation of historical investment results to prospective clients o These standards seek to avoid performance misrepresentation o Objectives • Obtain global acceptance of calculation and presentation standards • Ensure consistent, accurate investment performance data in areas of reporting, marketing, and presentations • Promote fair competition among investment management firms • Promote global “self regulation” o Only firms that actually manage assets can claim compliance. o No Partial compliance. Comply on firm wide basis or not. o Composite • A group of individual portfolios representing a similar investment strategy, objective, or mandate • Must include all fee paying discretionary portfolios before the fact and not after o Verification • Firms are responsible for their own claim of compliance but may hire a 3rd party verifier • Occurs for an entire firm and adds credibility • Tests whether Firm has complied with all composite construction on a firm wide basis Firm's processes and procedures are designed to calculate performance results in compliance with GIPS standards • When GIPS conflicts with local law, disclose conflict and obey local law. o Definition of a firm • Apply GIPS on a firm-wide basis • The firm must be identified as a distinct business unit (“firm” held out to the public) • Initially, present minimum of 5 years of compliant data • If less than 5 year history, present since inception o 8 major sections of GIPS 0. Fundamentals of compliance are issues for firms to consider when claiming GIPS compliance 1. Input data should be consistent in order to establish full, fair, and comparable investment performance presentation 2. Calculation methodologies are uniform in methods for calculating portfolio and composite returns 3. Composite construction refers to the creation of meaningful composites for fair presentation 4.Disclosures pertain to information about the presentation and the firm’s policies 5.Presentation and reporting standards require that investment performance must be presented according to GIPS 6. Real estate provisions apply to all real estate investment (land, buildings, etc.) regardless of the level of control the firm has over management of the investment 7. Private equity must be valued according to the GIPS Private Equity Valuation Principles o Possible Frequent Topics in Ethics • Research reports - fact vs opinion • Priority of Txns- remember loyalty food chain • Fair Dealing - watch how information is disseminated, should be equal as much as possible. Intent is important. • Personal Trades Disclose personal holdings No participation in equity IPOs Strict limits on participation: private placements • Soft dollars Kickbacks from broker for client trades must be used to benefit client, and not overhead. This belongs to client. • Disclose, disclose, disclose - conflicts, stock ownership, warrants, finder's fees, commissions, etc. Be broad and liberal in your defintion • Fair allocation of IPO's Disclose allocation procedures Does IPO fit in investment profile? • Prudent Man vs Prudent Investor Rule Look at portfolio and not individual investment • Professional misconduct - fraud, dishonesty, deceit, misrepresentations • Laws and regulations - how do you act when standards and laws are in conflict Go with most strict law • Investment objectives - always use existing policy statement until changes are discussed with client