Financial markets and the investment management industry have become increasingly global and complex in nature. The growth in the types and number of sophisticated financial institutions, the globalization of the investments, and the increased competition among investment management firms necessitates the need to standardize the calculation and presentation of investment performance.
The Global Investment Performance Standards (GIPS) are applied with the objective of full disclosure and fair representation of investment performance.
Asset managers and their existing and prospective clients benefit from an established global standard for calculating and presenting investment performance and it facilitates their investment and brings efficiency to the financial markets.
Investment practices, regulation, performance measurement, and reporting of performance vary considerably from country to country. By adhering to a global standard, firms in countries with minimal or no investment performance standards will be able to compete for business on an equal footing with firms from countries with more developed standards. It creates a greater degree of confidence in the performance information presented to them.
Performance standards that are accepted globally enable investment firms to measure and present their investment performance so that investors can readily compare investment performance among firms.
The GIPS standards were created and are administered by CFA Institute. A global executive committee governs GIPS, promoting the adoption and implementation of a single investment performance standard. The GIPS Executive Committee ensures that the Standards remain effective, useful, and relevant in the investment industry, responding to new issues as they arise.
The Objectives of the GIPS set forth by GIPS committee are listed below:
· To establish investment industry best practices for calculating and presenting investment performance that promotes investor interests and inculcate investor confidence.
· To obtain worldwide acceptance of a single standard for the calculation and presentation.
· To promote the use of accurate and consistent investment performance data.
· To encourage fair, global competition among investment firms without creating barriers to entry.
· To foster the notion of industry "self-regulation" on a global basis.
These standards are beneficial to the industry and the players including asset management firms and their clients and can pave way to bring information efficiency in financial markets.
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