A Jan. 9 Other Views commentary by Brian C. Breidenbach ("Misleading compliance: Public pension funds misuse performance reporting standards, even if return data are accurate") maintains that claims of compliance with the Global Investment Performance Standards by plan sponsors and consultants constitute false claims.
The basis for his position is a question-and-answer that was published by the AIMR Performance Presentation Standards Implementation Committee in a May-June 1995 newsletter. Mr. Breidenbach notes that while the Q&A establishes that, for the most part, these groups cannot claim compliance with the standards, the response does qualify that, if these groups have discretionary management responsibility of the assets over which the claim of compliance is asserted, the claim may be appropriate.
The GIPS standards are a practitioner-driven set of ethical principles for presenting prospective investors with composite performance presentations that facilitate comparison among investment management firms. These standards do not generally apply to existing client performance reporting, which attempts to demonstrate the return the investor has actually achieved. Practically speaking, it may be possible for plan sponsors that serve in a manager-of-managers capacity and/or internally manage plan assets to claim compliance with the GIPS standards; however, these groups must ensure that they meet all of the required provisions prior to asserting the claim.
Recognizing that the accuracy and reliability of performance presentations are greatly enhanced through compliance with the GIPS standards, many plan sponsors and consultants have expressed interest in complying with the standards. CFA Institute supports their intentions to pursue ethical practices but does not endorse inappropriate claims of compliance. Plan sponsors and consultants that are not able to comply with the standards can still endorse the ethical principles of the standards by requiring that the plan's external investment management firms comply.
The GIPS standards are based on an ethical rather than a regulatory approach to achieve effective, professional and efficient operation of capital markets. CFA Institute is not a self-regulatory organization. However, the SEC, in its examination of regulated entities, investigates false claims and may levy sanctions against misrepresentations.
In the interests of all investors, it is essential that the industry continue to aspire to the ethical principles of the GIPS standards, with the understanding that self-regulation means honesty and integrity in both the use and application of the voluntary standards.
Jeffrey J. Diermeier
president and CEO