Enhancing Global Competiveness Transparency, Comparability, and Restoring Investor Confidence Jonathan A. Boersma, CFA Executive Director Global Investment.

Enhancing Global CompetivenessTransparency, Comparability, and Restoring Investor Confidence

Jonathan A. Boersma, CFA

Executive Director

Global Investment Performance Standards

CFA Institute

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© 2011 CFA Institute

Mission To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence

Members 106,000+ investment professionals in 136 countries; 90% hold the CFA charter

Candidates More than 200,000 registrations expected for the three levels of exam in this fiscal year

Offices Brussels, Hong Kong, London, Buenos Aires, New York, & Charlottesville, VA

Website www.cfainstitute.org

CFA Institute - A Global Organization

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Why Ethics Matters

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Capital Markets Depend on Trust

Investors must have confidence in: Corporate leaders Accountants & Auditors Security analysts Asset managers Ratings agencies Consultants Financial institutions

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A Business of Confidence

Between… Client and advisor Client and consultant Analyst and advisor Issuer and investors Issuer and analyst Investors and institutions

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Points to Remember

Functioning capital markets depend on trust Good ethics is fundamental to market integrity Clients demand ethical conduct from managers - not just good

performance

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Evaluating Performance

Is this a good asset manager ?

40

60

80

100

120

140

160

Dec 9

6

Mar

97

Jun

97

Sep 0

7

Dec 0

7

Mar

08

Jun

08

Sep 0

8

Dec 0

8

Mar

09

Jun

09

Sep 0

9

Dec 0

9

Mar

10

Jun

10

Sep 1

0

Dec 1

0

Asset Manager Benchmark

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Who is the better asset manager ?

Manager A Manager B

5 % 5 %10 yr return

10 % 43 %Std Dev

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40

60

80

100

120

140

160

Dec 9

6

Mar

97

Jun

97

Sep 0

7

Dec 0

7

Mar

08

Jun

08

Sep 0

8

Dec 0

8

Mar

09

Jun

09

Sep 0

9

Dec 0

9

Mar

10

Jun

10

Sep 1

0

Dec 1

0

Asset Manager (Total) Benchmark (Price)

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Asset Manager Benchmark

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%


-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

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Jan-10 Feb-10 Mar-10 Apr-10 May-10-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Manager A Manager B

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

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-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Manager A Benchmark Composite

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What are the Global Investment Performance Standards (GIPS)?

Voluntary standards governing the calculation and presentation of investment performance based on the ethical principles of fair representation and full disclosure.

The goal of the GIPS Executive Committee is to have all firms adopt the GIPS standards as the standard for investment firms to present historical investment performance information.

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Mission of GIPS Executive Committee

To ensure that the GIPS standards are the premier performance standard globally and continue to represent best practice for the calculation and presentation of investment performance information.

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Countries that have adopted the GIPS® standards Countries with interest in adopting the GIPS standards

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Objectives of the GIPS standards

Ensure accurate and consistent data Obtain worldwide acceptance of standards for calculating and

presenting performance Promote fair, global competition among investment firms Promote industry self-regulation on a global basis

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Who Benefits from the GIPS standards?

Investors Plan sponsors High-net-worth investors Retail investors

Investment Managers Including equity, fixed income, hedge fund, private equity,

and real estate investment management firms

Intermediaries Consultants

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Benefit to Investment Managers

Firms recognized for adherence to industry best practice

Strengthened internal processes and controls; improved risk management

Introduces transparency to the performance presentation and generates an improved view of the track record

Market has determined that it wishes to embrace the GIPS standards

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Benefit to Investors

Enhanced ability to compare performance between firms and strategies

Consistency in calculation and presentation of performance results, such as frequency of valuation, treatment of large cash flows, and handling of accruals

Full disclosure of important details on performance data presented, such as fees, composite construction criteria, dispersion of returns, etc.

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Benefits of Policies and Procedures

Comprehensive and detailed Policy & Procedures (P&P) manual Eliminates the ‘gray areas’: speeds up process, no

discussion, ensures consistency Input data and Calculation methodology are part of P&P:

Policies for Valuation, Pricing, Technology, Market Data Update but retain previous details as they describe the past Institutional memory; document exceptions and one-off

solutions; maintain ‘daily’ Best training manual P&P requested and used by regulators, internal audit,

risk management

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The GIPS Standards

Fundamental Responsibilities Input Data Calculation Methodology Composite Construction Disclosures Presentation and Reporting Real Estate Private Equity

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Current Guidance Statements

Error Correction Performance Examinations Record Keeping Calculation Methodology Composite Definition Definition of Firm Performance Record

Portability Treatment of Carve-Outs Treatment of Significant Cash

Flows

Use of Supplemental Information

Verification Country-Specific Taxation

Issues Verifier Independence Wrap Fee/Separately

Managed Account Fees Provisions Private Equity Real Estate

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The Certificate in Investment Performance Measurement (CIPM) Program

Established by CFA Institute, the CIPM program is a specialty credentialing program that develops and recognizes the performance evaluation and presentation expertise of investment professionals.

The CIPM mission is to promote ethical standards and best practices in investment performance evaluation and presentation through: Building and promoting a globally recognized body of knowledge. Educating and certifying practitioners in that body of knowledge. Enabling and encouraging the professional excellence of that

body of practitioners.

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About the CIPM Program

Two Levels:Principles Level – emphasizes the conceptual foundations of performance measurement, attribution, and appraisal as well as the provisions of the Global Investment Performance Standards (GIPS).

Expert Level – emphasizes performance evaluation and presentation, including application of the appropriate tools and inputs in more complex situations and the GIPS Guidance Statements.

Three Major Topic Areas:• Professional Ethics• Performance Measurement, Attribution, and Appraisal• The Global Investment Performance Standards (GIPS)

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CIPM Curriculum Topics

Ethical and Professional StandardsThe Code of EthicsThe Standards of Professional Conduct

Performance Measurement, Attribution, and Appraisal

Rate-of-Return Calculations:Time WeightedMoney WeightedApproximation MethodsReturn CompoundingMulticurrencyReal EstatePrivate EquityAfter TaxPortfolios Containing Futures and OptionsPrior-Period Adjustments

Benchmark Selection:Validity and QualityStyle AnalysisCapitalization vs. Equal WeightingLiability-Based BenchmarksStrategy Benchmarks

Ex Post Risk Measures:Alpha and BetaStandard Deviation and Tracking ErrorRatios (Treynor, Sharpe, Information, M2)Downside Risk (Shortfall Risk, Expected Shortfall Value, Semideviation,Downside Deviation, Sortino Ratio)Hedge Fund Risk (Calmar and Sterling Ratiosand Qualitative Factors)Value at Risk

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CIPM Curriculum Topics (cont.)

Performance Evaluation:Appraising Value AddedInvestment PhilosophyManager Continuation PoliciesQuality Control Charts

Attribution Analysis:ArithmeticGeometricMulti-Period SmoothingTotal-Fund LevelMulticurrencyPortfolios Containing Futures

Long-Short and Market-Neutral StrategiesZero-Weight SectorsSecurity LevelTransaction vs. Holding BasedFixed IncomeMultifactor ModelsEquity Portfolio Characteristics

The GIPS StandardsFundamentals of ComplianceInput DataCalculation MethodologyCompositesCarve-OutsDisclosuresPresentation and ReportingError CorrectionReal EstatePrivate EquityVerificationPerformance ExaminationsExamination GuidelinesGuidance Statements

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Interpretations and Support

The GIPS standards website:– Complete list of Guidance Statements – Q&A Database– Free webcasts

The GIPS standards Handbook Helpdesk: ([email protected]) E-mail Alert List: ([email protected]) RSS Feed: gipsstandards.org/rss/ Twitter: gipsstandards

www.gipsstandards.org

Enhancing Global Competiveness Transparency, Comparability, and Restoring Investor Confidence Jonathan A. Boersma, CFA Executive Director Global Investment.

Documents

cfa institute countries

cfa institute points

cfa institute objectives

good performance slide

cfa institute capital

global basis slide

global organization

cfa charter candidates