Recently, an emerging manager considering becoming GIPS verified referred to the GIPS process as enigmatic. This firm spoke about the GIPS standards as if they were a blurry and ambiguous set of regulations. They were not the first to make their bewilderment this open and evident, and because other emerging managers have expressed similar misconceptions, it is time to disassemble what it means to become GIPS verified.

Verification of GIPS compliance asserts that the investment manager established policies that will ensure the firm remains GIPS compliant in the following areas: composite construction, pooled fund construction, performance calculation, performance presentation, and distribution of performance information. And further, verification tests that these policies and procedures have been implemented firm-wide.

The GIPS process starts with GIPS policies. The foundational item of GIPS compliance is that the firm must have formal, written policies to serve as the backbone of the firm’s compliance. As a consulting verifier, we provide the guidance and experience that helps compliance officers and performance managers create their very own GIPS policies. We have helped hundreds of firms over the last 16 years, and we know the best practices that succeed.

Once the policies are in place, the firm will be asked to provide the quantitative data that we will be verifying in small, digestible, and easily understood bites—both at the firm level, as well as at composite and account levels. Most emerging managers possess this data in Excel spreadsheet format, while others have invested in software solutions that help with composite construction and portfolio accounting.

Lastly, we examine the firm’s distribution of performance information, according to the requirements set by the GIPS standards.

At Absolute, we describe ourselves as emerging managers’ choice for GIPS. We have been helping emerging managers since our inception in 2006, and we have lived in GIPS compliance and verification since the 1990s.

We know the GIPS standards since before their inception. Yes, before the GIPS were GIPS, we managed the compliance and verification process at one of the largest investment institutions in the world. At the time, the GIPS standards were called the AIMR-PPS, which stood for two things: CFA Institute’s previous name, AIMR, was the Association for Investment Management and Research; PPS stood for Performance Presentation Standards. We have experienced every iteration and update of the GIPS standards.

Our knowledge of the Standards is matchless. We have lived GIPS compliance and verification from the vantage point of internal investment performance manager, of accounting-firm GIPS auditor, of institutional marketer, and of consulting verifier.

 

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