Q&A with two senior directors at CFA Institute on the revised 2020 GIPS standards
“In a world where investors' manager lists are getting shorter not longer, it might be difficult not to consider adopting GIPS if a lot of your competitors are.” Olivier Lebleu, Senior Manager, CFA Institute
Effective January 1st 2020, CFA Institute implemented the third modification to the GIPS standards to enhance the framework for transparent, consistent and comparable reporting on investment returns.
On December 3rd 2020, we had the privilege of hosting two senior directors, Olivier Lebleu and Iain McAra from CFA Institute to discuss how the revised 2020 GIPS standards help alternatives managers and allocators boost investor confidence through transparent, standardized and comparable reporting.
In this exclusive Q&A, Lebleu and McAra share their insights into how an increasing number of investors are expecting GIPS compliance as well as how these global gold standards enable hedge funds and private equity firms to stand out in the crowd. Also, Liam Poole, COO shares his views into faster, consistent reporting through the Allocator platform.
For a more in-depth review of the investment opportunities discussed, you can watch Lebleu’s, McAra’s and Liam's full presentation on the revised 2020 GIPS standards HERE.
Question
What are the other benefits from GIPS standards compliance given the current challenges?
Olivier Lebleu and Iain McAra
A firm is probably already doing most of the tasks that are required by GIPS. However, by following these standards, these tasks are supported by policies and procedures, which in turn produce a consistent, comparable, full and fair set of information. That information and those policies and procedures can be leveraged across the organization for other purposes, such as business continuity and business recovery, internal audit, risk management and even compensation discussions.
Although hedge funds and private equity firms might have a track record of investment returns, the question remains whether they are full, fair and consistent over a period of time. As the investors are becoming increasingly demanding when shortlisting managers, accurate, standardized, and comparable reporting helps to get you in line with the other compliant managers rather than being left out.
Being able to navigate through volatile times and beyond the 2020 GIPS standards also help you to mitigate business and reputational risks by providing a robust framework for standardized processes and procedures easy to adopt across your organization. The 2020 edition is designed to remove some of the hurdles, including duplicate reporting, and increased applicability IRRs.
As the 2020 GIPS standards are more applicable in this space, the question could be why is a firm not choosing to implement them? In a world where manager lists are getting shorter not longer, it might be detrimental not to consider adopting GIPS if your competitors are.
Question
How does Allocator help managers report their returns to investors easily, and how do investors comparably use the returns data?
Liam Poole
Allocator provides managers with access to their fund profile within our platform, allowing them to highlight any methodologies they employ within their calculations of returns. We also have our CFA data analysts apply quality assurance measures on this data once our automated data collection pipelines have processed reported data from managers. This then allows investors to see across their portfolio, peer groups and buy lists without having to work on identifying the source data or the calculation methodologies used.
For example, if managers claim GIPS compliance, they will have the ability to surface that information back to investors through their managed portals. For investors, that’s really important when you are screening across the universe, especially as Olivier highlighted, the universe that is getting smaller. As investors are looking to learn more before engaging, it will also allow them to quickly make sense of which managers are focusing on enhancing their reporting, increasing transparency and consistency and delivering that information up front.
Question
How do you see the demand for GIPS compliance impact the roadmap for Allocator software/data development?
Liam Poole
As the adoption of GIPS standards increases through managers and the demand for the adoption increases by investors, for providers like us, Allocator, it’s essential to ensure that we evolve accordingly.
We have welcomed the new updates to GIPS, as we continuously look for ways to bring standardization and true comparability of reported data from alternatives managers. Our clients work closely with us to develop new features to our platform that allows them to enhance their dynamic screening capabilities, and also assists them in their due diligence processes. Having GIPS compliance as a data set on our platform will allow investors to add a layer of screening to their processes, thus giving them the ability to identify managers that claim compliance with the standards quickly.
In a nutshell, GIPS has definitely had an impact on how we think about bringing information to investors in a consolidated and easy to consume way.
Question
Finally, what are the major allocator trends you see in GIPS compliance?
Olivier Lebleu and Iain McAra
One of the biggest trends in recent history was the adoption of GIPS for fiduciary managers in the UK, which was the result of a regulatory enquiry. They now have to adopt GIPS in their reporting, which will in time we believe translate into more significant pressure to have underlying managers adopt the standards.
To provide some more context, CFA Institute has a series of asset owners, i.e. allocators, who claim themselves compliant with GIPS for their internal performance calculations. Some of these are the largest sovereign wealth firms. They have adopted the standards for a variety of reasons Iain mentioned, including internal controls, documentation of processes and procedures. Besides, they have also set the benchmark for the external managers that they are going to be interacting with.
So, it's a smaller cohort than the asset managers or GPs, but we are starting to see asset owners, LPs, allocators adopting the GIPS standards. First, they use it as an internal guide for their performance calculations but have also used it as a springboard for broader discussions with external managers about the standards.
Some of the biggest asset owners in the world said the reason for adopting the standards was to follow ethical best practices. They can tell their participants and report to their supervisory board or trustees that they are following this global standard for performance reporting. There's no other global standard that relates to the calculation and presentation of ex-post performance. Asset Owners can also move the industry in the direction they would like to see it go regarding the adoption of ethical best practices by supporting the GIPS standards. Ultimately, better trust within the industry between the investors and the managers translates to longevity and more professionalism - and that's good for everybody.
For deeper insights, watch the 2020 GIPS presentation HERE. If you are looking for an analytics and portfolio management platform that provides you with seamless access to a broad range of private and public markets data, feel free to contact us HERE.