enhancing global competiveness transparency, comparability, and restoring investor confidence...
TRANSCRIPT
Enhancing Global CompetivenessTransparency, Comparability, and Restoring Investor Confidence
Jonathan A. Boersma, CFA
Executive Director
Global Investment Performance Standards
CFA Institute
2
© 2011 CFA Institute
Mission To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence
Members 106,000+ investment professionals in 136 countries; 90% hold the CFA charter
Candidates More than 200,000 registrations expected for the three levels of exam in this fiscal year
Offices Brussels, Hong Kong, London, Buenos Aires, New York, & Charlottesville, VA
Website www.cfainstitute.org
CFA Institute - A Global Organization
4
© 2011 CFA Institute
Capital Markets Depend on Trust
Investors must have confidence in: Corporate leaders Accountants & Auditors Security analysts Asset managers Ratings agencies Consultants Financial institutions
5
© 2011 CFA Institute
A Business of Confidence
Between… Client and advisor Client and consultant Analyst and advisor Issuer and investors Issuer and analyst Investors and institutions
6
© 2011 CFA Institute
Points to Remember
Functioning capital markets depend on trust Good ethics is fundamental to market integrity Clients demand ethical conduct from managers - not just good
performance
9
© 2011 CFA Institute
Evaluating Performance
Is this a good asset manager ?
40
60
80
100
120
140
160
Dec 9
6
Mar
97
Jun
97
Sep 0
7
Dec 0
7
Mar
08
Jun
08
Sep 0
8
Dec 0
8
Mar
09
Jun
09
Sep 0
9
Dec 0
9
Mar
10
Jun
10
Sep 1
0
Dec 1
0
Asset Manager Benchmark
10
© 2011 CFA Institute
Evaluating Performance
Who is the better asset manager ?
Manager A Manager B
5 % 5 %10 yr return
10 % 43 %Std Dev
11
© 2011 CFA Institute
Evaluating Performance
40
60
80
100
120
140
160
Dec 9
6
Mar
97
Jun
97
Sep 0
7
Dec 0
7
Mar
08
Jun
08
Sep 0
8
Dec 0
8
Mar
09
Jun
09
Sep 0
9
Dec 0
9
Mar
10
Jun
10
Sep 1
0
Dec 1
0
Asset Manager (Total) Benchmark (Price)
12
© 2011 CFA Institute
Evaluating Performance
Asset Manager Benchmark
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
13
© 2011 CFA Institute
Evaluating Performance
Jan-10 Feb-10 Mar-10 Apr-10 May-10-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Manager A Manager B
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
14
© 2011 CFA Institute
Evaluating Performance
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Manager A Benchmark Composite
15
© 2011 CFA Institute
What are the Global Investment Performance Standards (GIPS)?
Voluntary standards governing the calculation and presentation of investment performance based on the ethical principles of fair representation and full disclosure.
The goal of the GIPS Executive Committee is to have all firms adopt the GIPS standards as the standard for investment firms to present historical investment performance information.
16
© 2011 CFA Institute
Mission of GIPS Executive Committee
To ensure that the GIPS standards are the premier performance standard globally and continue to represent best practice for the calculation and presentation of investment performance information.
17
© 2011 CFA Institute
Countries that have adopted the GIPS® standards Countries with interest in adopting the GIPS standards
18
© 2011 CFA Institute
Objectives of the GIPS standards
Ensure accurate and consistent data Obtain worldwide acceptance of standards for calculating and
presenting performance Promote fair, global competition among investment firms Promote industry self-regulation on a global basis
19
© 2011 CFA Institute
Who Benefits from the GIPS standards?
Investors Plan sponsors High-net-worth investors Retail investors
Investment Managers Including equity, fixed income, hedge fund, private equity,
and real estate investment management firms
Intermediaries Consultants
20
© 2011 CFA Institute
Benefit to Investment Managers
Firms recognized for adherence to industry best practice
Strengthened internal processes and controls; improved risk management
Introduces transparency to the performance presentation and generates an improved view of the track record
Market has determined that it wishes to embrace the GIPS standards
21
© 2011 CFA Institute
Benefit to Investors
Enhanced ability to compare performance between firms and strategies
Consistency in calculation and presentation of performance results, such as frequency of valuation, treatment of large cash flows, and handling of accruals
Full disclosure of important details on performance data presented, such as fees, composite construction criteria, dispersion of returns, etc.
22
© 2011 CFA Institute
Benefits of Policies and Procedures
Comprehensive and detailed Policy & Procedures (P&P) manual Eliminates the ‘gray areas’: speeds up process, no
discussion, ensures consistency Input data and Calculation methodology are part of P&P:
Policies for Valuation, Pricing, Technology, Market Data Update but retain previous details as they describe the past Institutional memory; document exceptions and one-off
solutions; maintain ‘daily’ Best training manual P&P requested and used by regulators, internal audit,
risk management
23
© 2011 CFA Institute
The GIPS Standards
Fundamental Responsibilities Input Data Calculation Methodology Composite Construction Disclosures Presentation and Reporting Real Estate Private Equity
24
© 2011 CFA Institute
Current Guidance Statements
Error Correction Performance Examinations Record Keeping Calculation Methodology Composite Definition Definition of Firm Performance Record
Portability Treatment of Carve-Outs Treatment of Significant Cash
Flows
Use of Supplemental Information
Verification Country-Specific Taxation
Issues Verifier Independence Wrap Fee/Separately
Managed Account Fees Provisions Private Equity Real Estate
25
© 2011 CFA Institute
The Certificate in Investment Performance Measurement (CIPM) Program
Established by CFA Institute, the CIPM program is a specialty credentialing program that develops and recognizes the performance evaluation and presentation expertise of investment professionals.
The CIPM mission is to promote ethical standards and best practices in investment performance evaluation and presentation through: Building and promoting a globally recognized body of knowledge. Educating and certifying practitioners in that body of knowledge. Enabling and encouraging the professional excellence of that
body of practitioners.
26
© 2011 CFA Institute
About the CIPM Program
Two Levels:Principles Level – emphasizes the conceptual foundations of performance measurement, attribution, and appraisal as well as the provisions of the Global Investment Performance Standards (GIPS).
Expert Level – emphasizes performance evaluation and presentation, including application of the appropriate tools and inputs in more complex situations and the GIPS Guidance Statements.
Three Major Topic Areas:• Professional Ethics• Performance Measurement, Attribution, and Appraisal• The Global Investment Performance Standards (GIPS)
27
© 2011 CFA Institute
CIPM Curriculum Topics
Ethical and Professional StandardsThe Code of EthicsThe Standards of Professional Conduct
Performance Measurement, Attribution, and Appraisal
Rate-of-Return Calculations:Time WeightedMoney WeightedApproximation MethodsReturn CompoundingMulticurrencyReal EstatePrivate EquityAfter TaxPortfolios Containing Futures and OptionsPrior-Period Adjustments
Benchmark Selection:Validity and QualityStyle AnalysisCapitalization vs. Equal WeightingLiability-Based BenchmarksStrategy Benchmarks
Ex Post Risk Measures:Alpha and BetaStandard Deviation and Tracking ErrorRatios (Treynor, Sharpe, Information, M2)Downside Risk (Shortfall Risk, Expected Shortfall Value, Semideviation,Downside Deviation, Sortino Ratio)Hedge Fund Risk (Calmar and Sterling Ratiosand Qualitative Factors)Value at Risk
28
© 2011 CFA Institute
CIPM Curriculum Topics (cont.)
Performance Evaluation:Appraising Value AddedInvestment PhilosophyManager Continuation PoliciesQuality Control Charts
Attribution Analysis:ArithmeticGeometricMulti-Period SmoothingTotal-Fund LevelMulticurrencyPortfolios Containing Futures
Long-Short and Market-Neutral StrategiesZero-Weight SectorsSecurity LevelTransaction vs. Holding BasedFixed IncomeMultifactor ModelsEquity Portfolio Characteristics
The GIPS StandardsFundamentals of ComplianceInput DataCalculation MethodologyCompositesCarve-OutsDisclosuresPresentation and ReportingError CorrectionReal EstatePrivate EquityVerificationPerformance ExaminationsExamination GuidelinesGuidance Statements
29
© 2011 CFA Institute
Interpretations and Support
The GIPS standards website:– Complete list of Guidance Statements – Q&A Database– Free webcasts
The GIPS standards Handbook Helpdesk: ([email protected]) E-mail Alert List: ([email protected]) RSS Feed: gipsstandards.org/rss/ Twitter: gipsstandards
www.gipsstandards.org