Marketing Internationally with GIPS
by Rosellen Bounds, CIPM and Sachta Bakshi
Methodologies for calculating performance vary all over the world. So how can investors compare “apples to apples” in this globalized world? How do investors diversify their portfolio geographically and shop for the best investment managers to meet their needs globally? In turn, how do investment managers located on different continents compete? This is where the Global Investment Performance Standards (GIPS®) steps in to bridge the gap. The GIPS standards allow the investment industry to compare performance on a level playing field, internationally. When a firm complies with GIPS, they are making a pledge to investors to provide transparency– abiding by the principles of full disclosure and fair representation. The GIPS standards are advantageous to both the firm complying with the standards as well as investors looking to efficiently allocate their resources into meaningful investments. Investors in general place higher reliance on GIPS compliant firms than ones that are not. The investor is assured that the performance presented has met a certain standard and can rely on it to better interpret the results.
Beyond providing assurance for a particular product or strategy, compliant firms demonstrate a commitment to strong internal controls because the GIPS requirements must be applied across the entire firm. This commitment sends a message to prospective investors regarding the firm’s culture of compliance and adherence to best practices making the firm more attractive for prospective clients. Firms that comply with the GIPS standards should also view compliance as a global passport to grow their business. Since compliant firms calculate their performance according to a global standard, a prospective client from anywhere in the world can knowledgeably compare firms’ performance results as the standards afford investors a degree of familiarity with the methodologies used.
Over 1,500 firms worldwide claim compliance with GIPS, and Ashland Partners works with firms in 26 countries. Since its establishment in 1999, the GIPS standards have gained a lot of momentum and are now recognized as a reputable set of standards in countries with developed markets while the rest of the world is trying to grapple with the increasing demand for the standards from the consumer side. Currently there are 37 country sponsors of GIPS, which means each country has adopted and recognizes the GIPS standards as a best practice for performance reporting. As more countries adopt the Standards, local investment firms gain exposure to GIPS and are encouraged to implement these best practices recognized by their home country.”
So the question is asked, why do countries become GIPS sponsors? According to past GIPS Chair Mikhail Mora Aponte, CFA, the CFA Society of Mexico decided to become a GIPS country sponsor recently; one of the reasons being to promote GIPS “so more asset managers comply with it because it is the global standard/best practice.” The response to the question may vary from sponsor to sponsor, but the heart of the reason is the same – global competition. Being recognized on a global scale as a country that has gone through the process of applying for sponsorship with the CFA Institute and complied with the requirements but also decided to help promulgate the standards in their home country speaks volumes about the bar that has been set and the investor expectations that come with it.
Based on responses to a recent poll of Ashland Partners’ international clients there are a variety of reasons why firms decide to comply with GIPS; the most popular being gaining access to international investors. Given that GIPS was founded on the premise of standardizing what is presented to prospective clients, hence it’s perfectly clear why this was the most popular response. Other responses which compliment this fundamental reason are reputation, short & long-term firm goals, and industry best practice. The advantages in claiming compliance can be endless: competitive advantage, visibility in the market place, and the ability to distinguish the firm.
For many firms that claim GIPS compliance, the benefits largely outweigh the associated costs. Compliant firms benefit from (to name a few): high-level of compliant culture, new business opportunities that a firm may have previously been overlooked for, recognition as market leader, increase in firm assets, increase in clients- both locally and internationally, etc. The benefits easily outweigh the costs: manpower, historical data review, and firm-wide buy in. It seems very apparent why investment managers have opted to claim GIPS compliance in 37 countries around the world and why this number continues to increase- growth. The marketplace for an investment manager is no longer limited to the population of their city or even respective country. As the marketplace expands, so can a firm’s potential pool of investors.
In response to the question posed earlier- how do investment managers compete on a global scale? The answer is simple – elevate the firm’s international standing by adhering to the GIPS standards. And for firms that really want to increase credibility to their claim of GIPS compliance – independent verification is the key. Investors will continue to create demand for the ability to compare managers and place reliance on the performance presented. Answering affirmatively if a firm claims compliance with the GIPS standards leaves the door open for new opportunity to walk in.