When performance calculation and presentation are inconsistent, it is difficult for buyers to compare performance among sellers and for sellers to compete on an equal basis. GIPS® stands for Global Investment Performance Standards and are a way to increase transparency and make performance comparisons between different managers easier to understand and compare.
“What does this mean to me?”
In practice, GIPS are a “set of standardized, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients”, according to the CFA Institute. That means that a money manager in Toronto or Vancouver will calculate and present their results to clients in a similar fashion to one in Winnipeg or Calgary.
It also allows you to adequately compare performance based on the asset allocations of the managers you are considering. Adhering to these principles is completely voluntary, but being GIPS compliant makes it easier for investment firms to serve clients worldwide and locally, as the performance calculation standards can remain the same no matter what region they are reporting in. It is also easier for prospective clients because they will be comparing apples to apples, and not apples to oranges, when looking at the results of different money managers.
“So how does a firm go about becoming compliant?”
In order to claim GIPS compliance a firm must fulfil all applicable requirements of the GIPS standards, and, initially, must be able to show a five-year GIPS-compliant history (or history since inception for newer composites). The track record must eventually show ten years’ worth of performance history. Additionally, returns must be examined and verified by a third party. This provides greater confidence that a GIPS-compliant firm will act in a trustworthy, ethical, and professional manner.
“Is Evans Investment Counsel a GIPS-compliant firm?”
Evans Investment Counsel has been able to claim compliance since 1993. Our returns are examined and verified by ACA Group.
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