GIPS® 2020 is coming and while many firms may be unaffected, it is the largest change to the standards since their inception in 1999. The standards are evolving to remain relevant and maintain their core purpose: ensuring performance transparency and comparability. What exactly is the impetus for the update and what impact will GIPS® 2020 have once it is live?
Why are the standards being updated now?
Although the standards are quite successful already (41 countries have endorsed the standards and over 1700 firms claim compliance, including 86 of the top 100 asset managers worldwide), the endgame for GIPS® is universal acceptance. Alternative managers, private wealth firms and pooled-funds are still reluctant to claim compliance and asset owners have not yet realized the benefits of the standards. With this in mind, the goals of the update are to simplify the standards as much as possible, remove any potential barriers to entry for non-compliant firms and expand their scope to all types of assets and asset managers, all while retaining the integrity of GIPS®.
How are the standards being updated?
The GIPS® Executive Committee, on behalf of the CFA Institute, are in charge of governing the standards with the mandate of promoting ethics and integrity while instilling trust in the investment community through the use of the standards. To kick off the update process, the GIPS® Executive Committee released a consultative document in May 2017 and called on the public to help determine the overall direction of the update. The executive committee received over 5,000 comments from more than 120 different organizations, which would serve as the basis for the GIPS® 2020 exposure draft. This exposure draft was then submitted for public comment from September through December 2018 and the final draft was released June 30th 2019.
What are the major changes to the standards?
The biggest change to the standards is the incorporation of asset owners and verifiers and the decision to split the standards into separate documents for each business type (chapters) rather than one overly large document. For asset managers already in compliance with GIPS®, there are no fundamental changes to the standards that should cause major difficulties. There are a small number of changes to disclosures like the claim of compliance, the reintroduction of carve-outs and other opportunities regarding pooled-funds that may cause asset managers to broaden their current definition of firm. Additionally, firms will be required to make a new disclosure stating “GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization nor does it warrant the accuracy or quality of the content contained herein”. For a more detailed look at all of the changes to GIPS®, download our comprehensive guide here.
When is the effective date of the update?
The effective date for GIPS® 2020 is January 1st, 2020, meaning GIPS® reports that include performance for periods ending on or after December 31st 2020 must be prepared in accordance with the 2020 edition of GIPS®. GIPS® reports that include returns for periods ending prior to December 31st, 2020 may be prepared in accordance with the 2010 editions of GIPS®.
The 2020 edition of GIPS® marks a major step forward in broadening the relevance of the standards to alternative, pooled-fund, and private wealth managers as well as asset owners. It’s also an opportunity to emphasize the success of the standards to date and to re-energize the promotion of the standards to a much broader audience in terms of manager type, asset type and geographically.