Global Investment Performance Standards (GIPS)
What it is:
Global Investment Performance Standards (GIPS) are ethical standards for asset-management companies. They were established by the Association forResearch.
How it works (Example):
The CFA Institute, formerly known as the Association for Research, established GIPS for disclosing assets under management (AUM) and related information. refers to the total of managed by a , management, hedge fund, portfolio management or financial services company.
fund and according to changes in the value of the fund's underlying . GIPS require management companies to, among other things, include discretionary and nondiscretionary portfolios as well as controlled by a third party on behalf of the asset management company in the calculation.generally changes according to the flow of in and out of the
Why it Matters:
GIPS provide a uniform method of disclosure about the performance of assets under an 's management. The Securities and Exchange also has rules for disclosure of performance.
The idea is that the investor is entitled to fair and transparent disclosure about anmanager's true performance over time. Because many companies compare the size of their with competitors as a measure of success, accurate disclosure is especially important for accurately evaluating the returns earned by an manager and its competitors.
Additionally, manycompanies charge management fees equal to a fixed percentage of . This arrangement motivates the company to maximize , which further supports the need for uniform, ethical standards.