LOS a - Explain why GIPS standards were created, what parties the GIPS standards apply to and who is served by the standards
LOS b - Explain the construction and purpose of composites in performance reporting
LOS c - Explain the requirements for verification
- "[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS)" - Compliance must be applied on a firm-wide basis
Misleading practices include:
- Representative Accounts:
- Selecting a top-performance portfolio to represent the firm's overall investment results for a specific mandate.
- Survivorship Bias:
- Presenting an "average" performance history that excludes portfolios whose poor performance was weak enough to result in termination of the firm.
- Varying Time Periods:
- Presenting performance for a selected time period during which the mandate produced excellent returns or out-performed its benchmark - making comparison with other firms' results difficult or impossible