A few institutional investors are now requiring their alternative investment managers to comply with CFA Institute's global investment performance standards, but adoption is slow.
Pension plans requiring GIPS compliance include the $69.3 billion Ohio State Teachers' Retirement System, Columbus; C$176.2 billion (US$171.7 billion) Caisse de Depot et placement du Quebec; and Norway's sovereign wealth fund, the $680 billion Government Pension Fund-Global, Oslo.
What's more, consultants indicate that GIPS compliance was a big factor in manager selection.
With the GIPS, the CFA Institute is trying instill a degree of consistency in the way returns are calculated. Because there are differences in the ways returns are calculated now, few alternative investment consultants actually use the internal rates of return produced by the managers. Instead, consultants calculate returns themselves.
“We take a fair-value approach and provide a detailed hierarchy on how to value securities,” said Jonathan Boersma, executive director, GIPS, at the CFA Institute, New York.
The standards provide a framework for reporting and some consistency in arriving at valuations and returns.
Alternative investment managers have been slower to adopt global standards than managers in traditional asset classes, Mr. Boersma said. “Firms that have a pretty strong business and are not compliant may say, 'Well we're not going to spend the time or resources in becoming GIPS compliant because we don't need to. We can attract capital without it.'”
But Mr. Boersma said he has “lots of concerns” about those managers.
“GIPS standards don't require things that most managers that are worth their salt aren't doing already,” he said. “I would be concerned why a manager would not be compliant.”