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

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Presentation on theme: "Enhancing Global Competiveness Transparency, Comparability, and Restoring Investor Confidence Jonathan A. Boersma, CFA Executive Director Global Investment."— Presentation transcript:

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

2 2 © 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 Websitewww.cfainstitute.org CFA Institute - A Global Organization

3 3 © 2011 CFA Institute Why Ethics Matters

4 4 © 2011 CFA Institute Capital Markets Depend on Trust Investors must have confidence in:  Corporate leaders  Accountants & Auditors  Security analysts  Asset managers  Ratings agencies  Consultants  Financial institutions

5 5 © 2011 CFA Institute A Business of Confidence Between…  Client and advisor  Client and consultant  Analyst and advisor  Issuer and investors  Issuer and analyst  Investors and institutions

6 6 © 2011 CFA Institute 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

7 7 © 2011 CFA Institute

8 8 © 2011 CFA Institute

9 9 © 2011 CFA Institute Evaluating Performance Is this a good asset manager ?

10 10 © 2011 CFA Institute Evaluating Performance Who is the better asset manager ? Manager A Manager B 5 % 10 yr return 10 % 43 % Std Dev

11 11 © 2011 CFA Institute Evaluating Performance

12 12 © 2011 CFA Institute Evaluating Performance Asset ManagerBenchmark

13 13 © 2011 CFA Institute Evaluating Performance Manager AManager B

14 14 © 2011 CFA Institute Evaluating Performance Manager ABenchmarkComposite

15 15 © 2011 CFA Institute 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.

16 16 © 2011 CFA Institute 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.

17 17 © 2011 CFA Institute Countries that have adopted the GIPS ® standards Countries with interest in adopting the GIPS standards

18 18 © 2011 CFA Institute 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

19 19 © 2011 CFA Institute 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

20 20 © 2011 CFA Institute 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

21 21 © 2011 CFA Institute 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.

22 22 © 2011 CFA Institute 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

23 23 © 2011 CFA Institute The GIPS Standards  Fundamental Responsibilities  Input Data  Calculation Methodology  Composite Construction  Disclosures  Presentation and Reporting  Real Estate  Private Equity

24 24 © 2011 CFA Institute 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

25 25 © 2011 CFA Institute 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.

26 26 © 2011 CFA Institute 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)

27 27 © 2011 CFA Institute CIPM Curriculum Topics Ethical and Professional Standards The Code of Ethics The Standards of Professional Conduct Performance Measurement, Attribution, and Appraisal Rate-of-Return Calculations: Time Weighted Money Weighted Approximation Methods Return Compounding Multicurrency Real Estate Private Equity After Tax Portfolios Containing Futures and Options Prior-Period Adjustments Benchmark Selection: Validity and Quality Style Analysis Capitalization vs. Equal Weighting Liability-Based Benchmarks Strategy Benchmarks Ex Post Risk Measures: Alpha and Beta Standard Deviation and Tracking Error Ratios (Treynor, Sharpe, Information, M2) Downside Risk (Shortfall Risk, Expected Shortfall Value, Semideviation, Downside Deviation, Sortino Ratio) Hedge Fund Risk (Calmar and Sterling Ratios and Qualitative Factors) Value at Risk

28 28 © 2011 CFA Institute CIPM Curriculum Topics (cont.) Performance Evaluation: Appraising Value Added Investment Philosophy Manager Continuation Policies Quality Control Charts Attribution Analysis: Arithmetic Geometric Multi-Period Smoothing Total-Fund Level Multicurrency Portfolios Containing Futures Long-Short and Market-Neutral Strategies Zero-Weight Sectors Security Level Transaction vs. Holding Based Fixed Income Multifactor Models Equity Portfolio Characteristics The GIPS Standards Fundamentals of Compliance Input Data Calculation Methodology Composites Carve-Outs Disclosures Presentation and Reporting Error Correction Real Estate Private Equity Verification Performance Examinations Examination Guidelines Guidance Statements

29 29 © 2011 CFA Institute Interpretations and Support  The GIPS standards website: –Complete list of Guidance Statements –Q&A Database –Free webcasts  The GIPS standards Handbook  Helpdesk: (gips@cfainstitute.org)  E-mail Alert List: (standards@cfainstitute.org)  RSS Feed: gipsstandards.org/rss/  Twitter: gipsstandards www.gipsstandards.org


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