GIPS Performance Reporting

Struggling with this GIPS Rule, of having to present 5 years of performance for a fund, if the fund has existed for less than that, then report that amount. If the fund has existed for more than that report more, up to 10 years, see below. Isn’t the 5 year threshold completely irrelevant? Why isn’t the rule, report at least 10 years if possible?

Solution C is correct. Long Pond is required by the GIPS standards to present five years of performance because the composite has been in existence for that period. The mid-cap composite was started on 31 December 2001; therefore, performance for 2008 must be presented. After presenting 5 years of performance, the firm should present additional annual performance up to 10 years.

Here is what i understand. Not sure if this is 100% accurate.

When you claim compliance with GIPS for the first time, although you may be in existence for last 10 years, you need to present at least 5 years of compliant data at the outset.

I feel like I heard that somewhere as well, I agree there.

But I also think I heard that you had to present more than 5 if you have been in existence for more than 5.

Correct on the five year initial min. requirement:

In order to claim compliance, a firm is required to meet all applicable requirements of the GIPS standards on a firm-wide basis when creating the initial minimum five-year track record of investment performance history.

Once a firm (or composite) has its initial minimum five years of history , the firm must continue to add annual returns to each compliant presentation for the next five years (at a minimum), so that after five years of claiming compliance with the GIPS standards, the firm will have a ten-year performance record for its composites.

The general exception to 5 years above (initial minimum) is if the firm has been in existence for less than 5 years

But the 5 year is NOT truly a minimum, IF the firm has to add more years above 5 for each additional year.

This is basically saying (at least in my understanding), you have to pay me at least $5 for this Pizza, unless you have less than $5, then you need to pay whatever you have. If you have more than $5 than you need to pay me more, up to $10. If you have more than $10 you still only need to pay me $10.

Isn’t the $5 requirement then completely irrelevant??

I haven’t reviewed on GIPS yet but is it possible that 5 years is REQUIREMENT while everything else is RECOMMENDATION?

That was my suspicion as well. The wording in the solution I posted up there makes it sound like that, since they say required vs should.

I think it is relevant since I believe there is a difference between composite history and actual presentation of results. This guideline is applicable only to presenting compliant presentations.

I believe it is to prohibit a firm with say a 7 year record only presenting 3 year performance for the first time. If you have more than 5 available, then a minimum of 5 must be presented.

Hope this makes sense.

Ok, but this sounds like a min of 10 years must be presented:

The GIPS standards require that at least five years of GIPS-compliant performance be reported (or for the period since firm’s inception or the composite inception date if the firm or the composite has been in existence less than five years). After presenting a minimum of five years of GIPS-compliant performance (or for the period since firm’s inception or the composite inception date if the firm or composite has been in existence less than five years) , the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance (I.5.A.1a).

That’s right so case in question: firm has a 7 year composite history (say 2011-2017) and wants to present its performance in a GIPS compliant presentation. Minimum would be 5 years (2013-2017). Then present an additional year each year up to a minimum of 10 years (2013-2022). After 10 years it may drop the 11th year and replace it with the most recent year (2014-2023).

The recommendation however is to present as many years of compliant data as available (2011-2023).

Not sure, what the confusion here is, but both the 5 & 10 are must and two different ideas.

Both 5/10 yrs are Required.

5 yrs is the initial minimum (Requirement) to get started on presenting the GIPS reporting (the first time).

thereafter, additional 5 yr (upto 10 yrs min) must be built (which is the next Requirement)

That is my understanding too. I am struggling with 2 scenarios:

  1. what if I have less then 5 years to offer initially, then I report whatever I have, say 2 years. And then I need to work my way up to 10 years. right? In this scenario, the 5 years are irrelevant I would say.

  2. What if I have 7 years initially. Am I only require to report 5 years to begin with. And then I can work my way to 10 year with the new years, and ignore those initial 2 years that I left out?

  1. Simple- you cannot claim start to claim GIPS compliance, wait to collect the min. 5 yrs data.

The only exception here is if the firm has been in existence for 2 years, then yes, firm can claim compliance by presenting 2 years of data

  1. Yeah, you can start with 5 years minimum required (even if the firm has been in existence for 12 years as an example).

As soon as you have 10 years in total, then In year 11 (as eg.), you can chose to delete the first year data from presentation

so thereafter 10 years (rolling) reporting is the minimum requirement. Going any longer is firms choice and while is RECOMMENDED (not a requirement).

From GIPS handbook:

_ “At some point, a firm will have a minimum ten-year track record for a specific composite. In addition to the ten-year track record, when the firm eventually adds an additional annual return to the compliant presentation, the firm may delete the information for the oldest year included or may instead present a longer track record” _

Ahh, I am starting to get this:

If you don’t mind, I would like to make sure I get this 100% right. So to reiterate your/my 2nd example.

Say my firm has been in existence for 10 years (since 2008), I have the data for 10 years, but when I claim GIPS compliance initially all I need is 5 years of data, so all I need is data going back to 2013. And I might prefer to do that (say because 2008 returns were not very good).

BUT from here on out, I need to keep providing more and more data, that is add one more year until I get to 2023. Then I have 10 year data, so in 2024 I can drop the year 2013, right.

Correct, you’re describing my previous post.

Correct.

Moonborne, yes you are right, I missed that, you provided the same example.

Thank you both for double checking!!!

Can someone please explain how the company is violating GIPS in this. I understand the part the presentation is not in the spirit of fair disclosure. What I don’t understand is that how do the company violate the 5 year (built up to 10 years) performance rule?

Question:

Bentwood Institutional Asset Management has been managing equity, fixed-income, and balanced accounts since 1986. The firm became GIPS-compliant on 1 January 2001 and prepared composite performance presentations for the 1996-2000 period. Fixed-income performance was poor prior to 2001, when a new team of managers was brought on board. When Christopher Cooper joins Bentwood as marketing director in June 2006, he suggests showing performance starting with calendar 2001, the first year that performance started to improve. He proposes to show composites with returns for the five calendar years 2001 through 2005. Does this course of action comply with the GIPS standards?

Answer:

The GIPS standards require that at least five years of GIPS-compliant performance be reported (or for the period since firm’s inception or the composite inception date if the firm or the composite has been in existence less than five years). After presenting a minimum of five years of GIPS-compliant performance (or for the period since firm’s inception or the composite inception date if the firm or composite has been in existence less than five years), the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance (I.5.A.1a). Bentwood Institutional Asset Management could not drop the years prior to 2001 at the time Cooper suggests it do so. In addition to violating a specific requirement, Cooper’s suggestion was not in the spirit of fair representation and full disclosure of performance. Technically, the firm will be able drop the early years of its composite presentation once it has established a 10-year GIPS-compliant record, as long as it continues to show at least the most recent 10 years. For instance, it will be able to show just the 10 calendar years 2001-2010 after the composite returns for 2010 become available. However, it is recommended that Bentwood show its entire GIPS-compliant performance record (I.5.B.7). (See Sections 3.12 and 3.13 of the reading.)

Has this been settled?

I’m also not sure why they make the wording so unnecessarily complicated.

The minimum to me is 10 years.

If you’ve been in existence for 7 years, you gotta show 7 years.