By: Ian Serle
Past performance, the saying goes, does not predict future results. Yet, prospective clients still ask money managers about their performance history and a proven track record wins new clients and grows business. But how do investors know they can trust your numbers? How do regulators know you are representing your performance honestly and accurately? Comply with the Global Investment Performance Standards (GIPS) to assure them both.
The de facto industry standard for calculating and presenting performance, GIPS creates a level playing field and allows apples-to-apples comparison among investment managers. While GIPS isn’t mandatory, firms that do comply are looked upon more favorably by regulatory examiners.
The cornerstone of the GIPS methodology is the portfolio composite. Firms that want the GIPS “seal of approval” on their numbers put all their discretionary, fee-paying portfolios into composites of portfolios with similar strategies to calculate aggregate performance. Once composites are created, they must be maintained and periodically adjusted to ensure that all portfolios continue to adhere to their respective mandates.
While creating and maintaining composites is complex, they strengthen client trust and help you to promote your firm with confidence.
So where do you start? SS&C recently published “Best practices in composite management”, a whitepaper for firms that are considering, or just starting, the process of GIPS compliance. It walks you through the fundamental requirements to build and manage composites, as well as the pitfalls to avoid along the way.