Monthly Archives: October 2012

GIPS from the Buy-Side

Ed Van Deman
By Education, Investing

portfolio-calculationWithin certain segments of the investment community there is broad awareness of the Global Investment Performance Standards (GIPS). That awareness, however, is most evident on the Sell-Side of the industry where investment advisors are anxious to gain a marketing advantage over their competitors.

Advisory firms are therefore working hard to gain certification as GIPS Compliant in order to obtain a “seal of approval” for the integrity of their performance calculations and reporting standards. Because this drive for certification by the Sell-Side is so visible, it has caused many investors on the Buy-Side to think that GIPS only impacts investment advisory firms. That view is mistaken.

We believe there are three important reasons for investors to take the time to learn about GIPS and to understand how it can help them:


When investment managers follow GIPS, investors can be certain that returns are being calculated in a consistent manner across their portfolios. In addition, the calculation methodology is consistent from one period to the next.


The information provided under GIPS allows investors to consider a variety of key factors when evaluating the experience, breadth and competitiveness of investment advisors, including: total firm assets, list of composites (discretionary portfolios that collectively represent a particular investment strategy or objective), number of portfolios in a composite, fee schedules and benchmarks. In addition, investors can compare the success of managers with similar strategies by reviewing the performance returns they have achieved, the consistency of their management and the volatility of their strategy.

Due Diligence

Investors can compare the policies and procedures of alternative investment advisors: How does each firm define what is included in GIPS assets? What is not reported via GIPS? How are assets valued? How are composites formulated? What areas are covered by the verification and performance examination?

To assist our clients’ understanding, we recently conducted an informative webinar that featured one of the country’s leading providers of GIPS verification services. You can find a recording of this webinar at our Navigator Resource Center.

As an investor, you may consider GIPS to be an issue that only affects investment advisory firms. Before you lock in this view, however, take the time to understand all the benefits that GIPS offers. You will be rewarded for your efforts.