Asset Owners May Be Next to Adopt GIPS

The Global Investment Performance Standards (GIPS) from the non-profit CFA Institute have typically been adopted by investment firms and managers, but these voluntary reporting standards could soon be taken up by asset owners.

“Asset owners may want to comply with these standards for reporting investment performance, because it enhances transparency and an ethical code of conduct that is recognized globally in the industry,” says Bill Pryor, global head of J.P. Morgan’s Investment Information Services.

The CFA’s GIPS standards as it pertains to asset owners are expected to become effective January, 1, 2014, after which it will become clearer how much interest there is amongst asset owner to adopt the standards.

“The main thrust is for asset owners to follow industry standards in calculating performance, and the initial impetus came from public pension plans wanting best practices for reporting,” says Karl Mergenthaler, executive director in J.P. Morgan’s Investment Information Services group.

Even though GIPS does not come from a regulatory body and is entirely voluntary, asset owners might be more likely to adopt the standards because of the direction the industry is heading.

“When I think about trends I think of four—frequency, transparency, customization and access to information,” says Mergenthaler. “As it relates to frequency, large pension plans are moving toward daily performance reports and analytics, rather than monthly or annual reports. For transparency, clients are looking for security level detail and look through capability for commingled funds. For customization, [asset owners] want custom and blended benchmarks (such as creating a single benchmark composed of multiple underlying benchmarks)—so much more customization and tailoring of the portfolio. As far as access to information, clients want real-time access to data and have the ability to run reports and gain information on a daily basis.”

Generally speaking, says Mergenthaler, the requirements are “straightforward and won’t be cumbersome for pension plans to comply with.” Thus, there is reason to believe that asset owners would want to adopt GIPS, as the downsides are minimal. Still, there’s no guarantee that asset owners would be willing to make the investment in something that’s not mandated.

“The pushback would be one of cost and benefit,” explains Mergenthaler. “Typically pension plans have limited resources in terms of personnel and money, and they would be concerned this would be onerous to comply with over time. That being said, the guidelines aren’t very difficult and shouldn’t be costly or timely. But that is one concern.”