GIPS

Without a common rulebook, every manager could present performance its own way: pick its best accounts, choose a flattering start date, quote gross returns, annualise a lucky six months. Two managers' "18% a year" would not mean the same thing.

GIPS is that common rulebook. It sets out how an investment firm must calculate returns and how it must present them to prospective clients, so that results are comparable regardless of geographic location.

Compliance is claimed by the firm, not by a single fund. The central idea is the composite: an aggregation of all portfolios managed to a similar mandate, objective or strategy, presented together — so a firm cannot show only its best accounts.

Calculation. GIPS mandates the time-weighted rate of return, which removes the effect of client cash flows. SEBI's Portfolio Managers Regulations likewise prescribe TWRR for communicating past performance.

Disclosure (Chapter 8). The workbook lists 15 GIPS disclosure requirements, including: the composite description and its material risks; the benchmark description; whether returns are gross or net of fees and what else is deducted; the reporting currency; the measure of internal dispersion; the current fee schedule; the composite inception date and creation date; that valuation and calculation policies are available on request; and, if no appropriate benchmark exists, why none is presented.

Advertising (Chapter 20). An advertisement claiming compliance must include, among 11 items, a firm description, the strategy, period-to-date composite results, and 1-, 3- and 5-year annualised composite returns or 5 years of annual returns — with the rule that periods of less than one year must not be annualised.

Illustrative figures. A Mumbai-based discretionary portfolio manager claims GIPS compliance and wants to advertise its Emerging Leaders strategy, run for 42 client accounts with a combined ₹380 crore.

In India, SEBI's requirements run in parallel: the firm must report performance net of all fees and expenses (including taxes), include cash and liquid-fund holdings, and ensure the aggregate firm-level performance equals the combined performance of all portfolios.

Chapter 8 (Operational Aspects of Portfolio Managers), section 8.2.2, treats GIPS as best practice for disclosures and lists its disclosure requirements. Chapter 20 (Performance Measurement and Evaluation of Portfolio Managers) quotes the GIPS definition of TWRR and of a benchmark, notes that GIPS mandates TWRR, and sets out the GIPS Advertising Guidelines in sections 20.10–20.11. Expect recall questions: who owns GIPS, which return method it mandates, what a composite is, and whether sub-year returns may be annualised.

• GIPS is voluntary and firm-wide. A firm claims compliance for the whole firm; there is no such thing as one GIPS-compliant fund in a non-compliant firm.
• GIPS mandates TWRR, not MWRR/XIRR. (SEBI separately requires XIRR when reporting to an individual investor — Chapter 20, section 20.7.)
• Less than a year: never annualise.
• A composite is a group of portfolios with a similar mandate — the idea is to prevent cherry-picking.
• Possible staleness inside the workbook. Chapter 8 cites the 2020 GIPS standards for firms, while Chapter 20's advertising list — including the reference to non-compliant performance for periods before 1 January 2000 — reflects the older Advertising Guidelines. Learn the list as the workbook states it; be aware that CFA Institute has revised the standards since that list was written.