GIPS Presentation to ASAF

Global Investment Performance Standards (GIPS®): 

The Global Passport for Asset Managers Yoh Kuwabara Presentation to: Asian Security Analysts Federation 8 November 2006 Seoul, South Korea GIPS Executive Committee Verification/Practitioner Subcommittee Chair Director, Misuzu Audit Corporation Global Investment Performance Standards (GIPS®)

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A

GIPS Objectives: 

GIPS Objectives

1. Background: 

1. Background Fraudulent presentation of investment performance Cherry picking ‘Apple to Orange’ Comparison Insufficient, misleading disclosure ‘They had been able before we hired them!?’

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A

2. History: 

2. History Pre-GIPS Era GIPS1999 Introducing CVG/TG GIPS2005 Status Quo – September 2006

2-A) Pre-GIPS Era: 

2-A) Pre-GIPS Era 1987:‘Performance Presentation Standards’ established for USA and Canada—1993:Revised to ‘AIMR-PPS’ Several countries followed suit 1992: ‘The Pension Fund Investment Performance Code’ (UK) 1997: SPPS (Switzerland) 1998: DVFA Standards (Germany) 1998: AIPMPS (Australia) 1998: VBA-PPS (Netherlands) 1999: SAAJ-IPS (Japan)

2-B) GIPS1999: 

2-B) GIPS1999 1995: EFFAS Permanent Commission on Performance Measurement advocated need for a global standard 1995:AIMR-PPS Global Implementation Committee established 1998: Exposure Draft of GIPS released for public comment 1999: GIPS finalized (February)

2-C) Introducing CVG/TG: 

2-C) Introducing CVG/TG 2000: ‘GIPS Adoption at Country Level’ introduced IPC endorsement of CVG and TG Countries introduced CVGs: Australia, Ireland, Italy, Japan, South Africa, Switzerland, UK, USA/Canada CVG: Country Version of GIPS. Minimum addition to GIPS based on country specific laws/regulations and/or established practice is allowed TG: Translation of GIPS. No addition, no modification allowed except for a ‘wrapper’

2-D) GIPS2005: 

2-D) GIPS2005 Some ‘Recommendations’ upgraded to ‘Requirements’ Added new provisions for Fees, Real Estate and Private Equity Added as new provisions some essence of Guidance Statements Added some global ‘best practices’ Proposed ‘Convergence to GIPS of CVGs’ Effective: 1 January 2006

2-E) Status Quo – Sept. ‘06: 

2-E) Status Quo – Sept. ‘06 27 countries and/or regions adopted GIPS *: Republic of Palau, Republic of the Marshall Islands, Federated States of Micronesia, Commonwealth of the Northern Marianas Islands, Territory of Guam

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A

3. Contents: 

3. Contents Concept GIPS Provisions Key Requirements Guidance Statements Verification

3-A) Concept: 

3-A) Concept Self-regulatory nature Vision: Fundamental principle: ‘Fair representation and full disclosure ‘A global investment performance standard leads to readily accepted presentations of investment performance that (1) present performance results that are readily comparable among investment management firms without regard to geographical location and (2) facilitate dialogue between investment managers and their prospective clients about the critical issues of how investment management firm achieved performance results and determines future investment strategies.’ (GIPS I. 5.)

3-B) GIPS Provisions: 

3-B) GIPS Provisions Provisions: 0. Fundamentals of Compliance 1. Input Data 2. Calculation Methodology 3. Composite Construction 4. Disclosures 5. Presentation and Reporting 6. Rea Estate 7. Private Equity Appendices: A: Sample GIPS-Compliant Presentation B: Sample List and Description of Composites C: GIPS Advertising Guidelines D: Private Equity Valuation Principles E: GIPS Glossary

3-C) Key Requirements: 

3-C) Key Requirements ‘Firmwide’ compliance(3.A.1) ‘Composite’ performance(2.A.3) Use of Time-weighted Rate of Return(2.A.2) No simulated and/or back-tested return(3.A.8) Minimum 5 years of compliant performance data(5.A.1.a) All supporting data must be kept(1.A.1) Document policies and procedures to establish and maintain compliance(0.A.6)

3-C) Key Requirements-Cont’d: 

3-C) Key Requirements-Cont’d Important policies must be defined by firms Definition of the entity to claim compliance (FIRM) Definition of ‘investment discretion’ Definition of composites

3-D) Guidance Statements: 

3-D) Guidance Statements *:Awaiting finalization

3-E) Verification: 

3-E) Verification A review by an independent third-party ‘verifier’ of investment management firm’s performance measurement processes and procedures. Verification tests: ‘Not currently required but strongly encouraged (Section III) Whether the firm has complied with all the composite construction requirements of the GIPS Standards on a firm-wide basis Whether the firm’s processes and procedures are designed to calculate and present performance results in compliance with the GIPS Standards.

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A

4. GIPS Organization: 

4. GIPS Organization Overview GIPS Executive Committee GIPS Country Sponsors GIPS Council RIPS Subcommittees Working Group GIPS Secretariat

4-A) Overview: 

4-A) Overview

4-B) GIPS Executive Committee: 

4-B) GIPS Executive Committee Supreme decision-making body for GIPS matters Comprising 9 members w/voting rights: Can create/amend GIPS Provision/Guidance Statements without CFA Institute Board approval Annual reporting to CFA Institute Board Required + EC Director (CFA Centre Director of IPS)

4-C) GIPS Country Sponsors: 

4-C) GIPS Country Sponsors Should sign Agreement with CFA Institute and EC Should send representatives to RIPS and Council Roles and responsibilities include: Promoting GIPS within their countries Being knowledgeable about and kept abreast of their domestic market and industry Nominating people for Subcommittees Submitting comments on exposure draft

4-D) GIPS Council: 

4-D) GIPS Council Established under GIPS EC Comprising all GIPS Country Sponsors Has subdivisions among 3 regions (RIPS: Americas, Asia-Pac, EMEA) Council Chair has 1 voting right at the EC Along with 3 RIPS Chairs, Country Sponsor representatives occupy 4 seats at the 9 member GIPS EC

4-E) RIPS : 

4-E) RIPS ‘Regional Investment Performance Subcommittee’ Established under GIPS Council, but Chair retains 1 voting right at GIPS EC 1 Each for Americas, Asia-Pac and EMEA May have subcommittees and/or working groups underneath

4-F) Subcommittees: 

4-F) Subcommittees Major ‘stakeholders’ alongside Country Sponsors Interpretations Subcommittee Other technical subcommittees on specific topic/subject (e.g., Real Estate, Private Equity, Hedge Fund)-currently not existent Investor/Consultants Subcommittee Investment Manager Subcommittee Verification/Practitioner Subcommittee Promotion and Awareness Subcommittee

4-G) Working Groups: 

4-G) Working Groups Intellectual Property Working Group Process Working Group Communication Task Force

4-H) GIPS Secretariat: 

4-H) GIPS Secretariat Staff at CFA Centre Support activities of EC(1), Council(1), RIPS(3), Subcommittees(5) and Working Groups(3) Guardian of GIPS documents Website Administrator

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A

5. Initiatives: 

5. Initiatives Promote GIPS around the world Upgrade GIPS to incorporate global best practices

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A

6. Future Plan: 

6. Future Plan GIPS2010 – next overall revision and upgrade of GIPS Subject of discussion may include: Mandating verification New Provisions for Hedge Fund New Provisions on after-tax performance

GIPS Presentation: 

GIPS Presentation Background History Contents Organization Initiatives Future Plan Q & A