News
FOCUS - Summer 2005
REVISED GIPS - THE END OF CVGs?
Industry comment by David Flint, Performance Consultancy Institutional Fund Services, HSBC Securities Services (UK) Ltd
In February the CFA Institute adopted and released the revised GIPS, which becomes effective from 1st January 2006. What do the revised GIPS mean for investment management firms that currently comply with a Country Version of GIPS (CVGs)?
The aim of the Investment Performance Council (IPC), the CFA Institute body responsible for developing GIPS, has always been to have GIPS as the only performance presentation standard. The IPC adopted a convergence strategy in an attempt to reach this goal, and wean countries off their own local performance presentation standard. Part of this strategy involved developing GIPS into the "gold standard" and also employing a Country Version of GIPS approach, whereby GIPS formed the core of local performance presentation standards. Importantly, all CVGs had to be endorsed by the IPC.
The draft version of the revised GIPS was known as "gold GIPS" and therefore it would seem logical that the recently adopted revised GIPS sees the introduction of the "gold standard". With the adoption of the revised GIPS, it is the IPC's hope that CVGs will no longer be necessary, as all countries will comply with the revised GIPS from 1st January 2006. Indeed the revised GIPS states "this version promotes the highest performance measurement and presentation practices and eliminates the need for separate local standards "
Whether this declaration comes to fruition, only time will tell. It is likely that some markets will be more averse to adopting GIPS as the performance presentation standard, compared to their own CVG, and some Country Sponsors of CVGs will protest more loudly than others.
Therefore, it does leave open for debate the issue of what happens next for CVGs? Are Country Sponsors of CVGs obliged to add the revised GIPS as core to the local standard? Must CVGs be re-endorsed to ensure that the revised GIPS form the core of the CVG? If CVGs are to be re-endorsed what happens if the CVGs have not gone through the process for re-endorsement before January 2006? Alternatively, should CVGs be consigned to history from January 2006?
Without a clear proclamation from the IPC, firms who currently comply with a CVG will be in a quandary on whether to continue to claim compliance with a CVG, or go for GIPS only. Our advice is; make certain that the firm complies with the revised GIPS, that way you can be sure your firm is meeting the "the highest performance measurement and presentation practices". To do so, firms will need to be aware of the changes to GIPS and ensure they comply with them on 1st January 2006. Don't leave it too late!