Welcome to the section one-point-five on global investment performance standards (G-I-P-S

P-S standards apply to the investment management firms. G-I-P-S standards serve the existing as well as the prospective clients.

Sub-section one-point-four b: -- Construction and purpose of composites in performance reporting --

Performance is presented for the composites, which include discretionary account portfolios with a similar investment strategy, mandate, or objective. The performance reporting for the composites gives clients information about the success in managing the client funds by an investment firm.

Sub-section one-point-four c: -- Requirements for verification --

Verification is voluntary. Independent verification by a third party gives the assurance that G-I-P-S standards have been appropriately applied. It has to be on the investment firm-wide basis and in conformance with the G-I-P-S calculation methodology and formats. The verified investment firms must also disclose the periods for which compliance verification was done.

Welcome to the section one-point-five on global investment performance standards (G-I-P-S).

In this section, we have four sub-sections that explain the various aspects and concepts related to global investment performance standards. The sub-sections are --

a. -- Key features of the G-I-P-S standards and the fundamentals of compliance.

b. -- Scope of the G-I-P-S standards with respect to an investment firm’s definition and historical performance record.

c. -- How the G-I-P-S standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when the G-I-P-S standards and local regulations conflict.

d. -- Nine major sections of the G-I-P-S standards.

Sub-section one-point-five a: -- Key features of the G-I-P-S standards and the fundamentals of compliance --

Key features of the G-I-P-S standards are: --

 Consistent and accurate performance presentation information.

 G-I-P-S compliant performance results for minimum five years or since the firm inception.

 Well defined firm as a distinct business entity.

 Full compliance only.

 Applied on a firm-wide basis.

 Include all portfolios.

 Accurate input data.

 Five years of compliant data with addition of data each year to reach a minimum of the ten years.

The fundamentals of compliance include both the requirements and recommendations such as firm-wide basis, distinct business unit, full compliance, etc.

Sub-section one-point-five b: -- Scope of the G-I-P-S standards with respect to an investment firm’s definition and historical performance record --

G-I-P-S standards are applied to a distinct business entity on the firm-wide basis and include all locations and total firm assets. The time period for performance presentation is the minimum five years or since the firm inception. After five years of compliant data for performance presentation, the firm must add data each year to have data of a minimum of the ten years.

Sub-section one-point-five c: -- How the G-I-P-S standards are implemented --

In a case of conflict with the local or country specific laws or standards, the firm must follow the country specific laws with disclosure of the G-I-P-S conflict.

This guidance helps in the determination of the course of action or the path of implementation to be adopted by a firm in case of the G-I-P-S standards. It avoids the ambiguity and scope for misinterpretation.

Sub-section one-point-five d: -- Nine major sections of the G-I-P-S standards --

There are nine major sections of the G-I-P-S which include:

One -- fundamentals of compliance that include firm definition, appropriate documentation, compliance claim and verification, etc. must be adhered to.

Two -- input data must be consistent.

Three -- calculation methodology must be uniform.

Four -- composite construction must be asset weighted.

Five -- disclosures of the information about the presentation and policies must be made.

Six -- presentation and reporting must be G-I-P-S compliant.

Seven -- real estate provisions must be applied to all real estate investments.

Eight -- private equity must be valued as per G-I-P-S principles.

Nine -- Wrap Fee/Separately Managed Account (SMA) portfolios must be analyzed in accordance with the specific requirements.

Key Takeaways --

 Ethics is the study and practice of the moral principles to make good and acceptable choices.

 The code of ethics of a profession establishes the guiding principles and the expected behavior from the practicing members.

 The standards of conduct of a profession are the detailed instructions to guide the day to day conduct of the members.

 Financial rewards can motivate people to act in an unethical manner for the short term gains without recognizing the long term consequences or risks.

 High ethical standards are needed for the investment industry as it is built on trust mainly.

 All CFA Institute members as well as CFA candidates need to comply with the code of ethics and standards of professional conduct.

 CFA Institute members and candidates need to follow the six components of the code of ethics and seven standards of professional conduct prescribed by CFA

Institute.

 CFA Institute members should have knowledge of the law and must comply with all applicable laws and rules.

 CFA Institute members must follow the conduct that conforms to the code and standards when dealing with clients such as fair and transparent dealings, loyalty to clients, serving interest of clients, loyalty to employers, etc.

 Any conduct that violates the code and standards should be avoided like acting on nonpublic material information, taking up shares personally in oversubscribed initial public offering, conflict of interest, etc.

 G-I-P-S standards were created with an aim to provide the uniform framework for the presentation of the historical performance results and avoiding misrepresentation.