GIPS Committees and Working Groups

Transcription

1 GIPS Committees and Working Groups A review of standard practices A review of standard practices WHITEPAPER advent.com

2 Because each firm is unique, there is not a standard, universal way to maintain a committee. This white paper answers the most commonly asked questions regarding GIPS Committees and working groups, and provides insights into best practices and industry trends for organizations of all sizes. It is based on a review of several firms practices by ACA Performance Services. Claiming compliance with the Global Investment Performance Standards (GIPS ) requires involvement from multiple divisions of a firm s organization. Generally, a claim of compliance impacts the performance, compliance, and marketing divisions at a minimum, and potentially other divisions, too. Because GIPS-related responsibilities are disparate in nature, a GIPS Committee is a helpful tool to ensure oversight at the firm level. A committee is meant to facilitate clear lines of communication across divisions, and ultimately to serve as a mechanism to ensure that the firm achieves and remains in compliance with the GIPS standards. Firms often have many questions related to the construction and implementation of a GIPS Committee. Further, because each firm is unique, there is not a standard, universal way to maintain a committee. Firms of varying sizes and structures will require different committee participants and practices. Do most firms have formal GIPS Committees? The answer depends on the nature of the firm. Smaller firms often have people that serve in more than one role, for instance a joint CCO and COO. In such cases, a GIPS Committee may not be necessary. Generally, most firms that have a formal GIPS Committee have assets in excess of $1billion or are part of a global or multiboutique entity. However, in some cases, those firms have structured the GIPS Committee as an informal committee or working group. The reasons cited for not maintaining a formal committee include the operational burden of maintaining minutes (retention, filing, approval, etc.), framework uncertainty (which members of senior management should be involved in GIPS-related discussions outside of their expertise), and the approval process to have the committee formalized (particularly at banks and insurance companies). For some firms that do have a formal GIPS Committee, it is in addition to an informal working group. The GIPS Committee serves as more of a steering committee and only meets annually or when significant firm decisions need to be made. For these firms the informal GIPS team or working group meets at least quarterly to discuss any other GIPS issues that need to be addressed. Included at the end of this document are three examples of GIPS Committee Charters and an example of a set of GIPS Committee Meeting Minutes. What are typical activities of a GIPS Committee? Typical committee meeting activities include: Annually Review and approve new policies and changes to existing policies, composite definitions, and any other GIPS-related matters. Review existing policies and procedures to ensure they still meet the needs of the firm and current business decisions. Review new guidance and determine its applicability to the global firm and/ or the individual firms or boutiques (e.g., new guidance statements, Q&A s, etc.). Review composite presentations to determine if there are any additional required disclosures (e.g., materialityrelated disclosures that may change over time). Review the list of composites on an annual basis to determine that it is accurate and complete. Quarterly or Monthly Review list of new accounts during the period and composite inclusions. Review list of terminated accounts during the period and composite exclusions. Review list of accounts that changed mandates during the period and resulting composite membership changes. Review policies and procedures related to any new composites created during the period. Review any errors that have been identified during the period. How often do GIPS Committees meet? In most cases, GIPS Committees meet quarterly. This facilitates a timely review of all activity under the committees purview. In some cases, firms formal committees represent more of an oversight role, and the day-to-day implementation of the GIPS program is carried out by a delegated working group. In these instances, it is not 2 GIPS Committees and Working Groups A review of standard practices

3 advent.com uncommon for the formal committee to meet only annually or as needed. How are GIPS Committees structured and how do they operate? Because firms are structured differently, the makeup of GIPS Committees varies somewhat across organizations; however, there are definite trends in the composition of the committees. Nearly all committees include representation from the following departments. Portfolio/Investment Management Compliance/Legal Performance/Risk Operations Sales/Marketing Senior Management Product Teams Any other areas pertinent to the firm In an entity with a global framework, these may be covered by one person for all firms or a different person for each individual firm. It is best practice to identify a representative from each department, for each firm, as applicable. The roles depend less on titles (CEO, CCO, COO, etc.) and more on the individual s knowledge of the GIPS standards and ability to interpret and apply them. It is important to note that most firms with a formal committee should ensure that no one department or team is overrepresented on the committee, particularly as voting members. In some cases, GIPS Committees have informal members who attend on an as-needed basis when discussing a topic that impacts their division. For example, a member of the RFP/Presentation team would attend if there is discussion surrounding a firm decision on what to include, from a GIPS standpoint, within a specific RFP. Regarding the chairperson, the composition of the committee is more important than the individual who chairs it. The chairperson should be very knowledgeable of the GIPS standards and have time to prepare or review any committee meeting materials before they are distributed. Often, the chair of the committee is the person ultimately responsible for overseeing the firm s claim of GIPS compliance. Within most formal GIPS Committee charters, the chairperson is the individual in charge of either operations, performance, risk, or compliance. Many committees operate without formally naming a chair. Some GIPS Committees will institute voting rights for only certain members. This generally occurs with larger firms that have more formal committees in place. Often, the voting members include all members on the committee. In some cases, the voting members include the most senior individuals from each department who have knowledge of the GIPS standards (e.g., the Director of Compliance, rather than the CCO): Compliance/Legal, Performance/Risk, Operations, Sales/Marketing. How should the committee be structured when the GIPS firm is part of a global or multi-boutique entity? In a global or multi-boutique environment, it is important to remember that each GIPS firm is responsible for its own decisions and documentation. If there is to be a single formal GIPS Committee, there needs to be documentation on how each firm is represented on the committee. Generally, firms that utilize only one formal GIPS Committee have a representative of each firm or boutique (non-voting) to provide input on how a respective topic may impact their specific business line. The meetings for global firms tend to be very infrequent and are only required when there are significant decisions to be made. The GIPS working groups for these organizations meet quarterly and do not contain representation from each firm or boutique, but rather each department of the global entity supporting the respective firms and boutiques. How should a startup firm approach the formation and use of a GIPS Committee? Generally, depending on the complexity of applying the GIPS standards, startups may not find it beneficial to have a formal GIPS committee. This is because startups often have a small number of individuals who serve in many capacities. The most important aspect for a startup firm is to have a key individual responsible for oversight and application of the GIPS standards, as well as keeping abreast of any updates promulgated by CFA Institute and any applicable regulatory bodies. The individual responsible for the GIPS standards should also find an efficient way to disseminate the knowledge and ensure firm buy-in on new requirements and processes. Concluding thoughts If a firm is going to form a GIPS Committee, it must develop and adhere to policies and procedures around the committee s composition, frequency of meetings, and record retention of minutes. It is almost certain that a regulator will request relevant GIPS Committee meeting items to ensure that the firm is following documented processes and procedures. Ultimately, a GIPS Committee can be a valuable tool to ensure that a firm achieves and remains in compliance with the GIPS standards. However, committees will not make sense for every firm. Each firm must consider multiple factors when determining if and how to utilize a committee and whether it will be an informal or formal group. This white paper provides insight into best practices and industry trends to help your firm determine the best solution to fit your needs. See the following Appendix for examples of GIPS Committee Charters and Committee Meeting Minutes GIPS Committees and Working Groups A review of standard practices 3

4 Appendix Example #1 Single firm claiming compliance $3b AUM 15 composites, 50 accounts, traditional strategies GIPS Committee The purpose of the GIPS Committee is to: Establish and maintain a group of personnel within the firm that is knowledgeable in navigating the GIPS standards and keeps abreast of changes to them, as well as other industry best practices; Suggest, approve, and implement changes to the firm s GIPS Policies and Procedures; and Monitor the firm s practices to ensure adherence to the firm s Policies and Procedures. The GIPS Committee consists of: Name 1 (Operations) Name 2 (Investments) Name 3 (Compliance) Name 4 (Marketing), Committee Chair Periodic reviews On a quarterly basis, [FIRM] will: Ensure composites have been constructed in accordance with the firm s Policies and Procedures. Maintain a list of prospective clients that have received marketing material, and a description of the material provided. Review accounts that have entered or exited composites to ensure they have client-directed instructions noted. Review the firm s list of composites and descriptions to ensure they are up to date. At least annually, [FIRM] will: Review the definition of the firm to ensure it is accurate in light of any recent or anticipated changes to the organization. Review composite fee schedules to ensure they are current. Review and modify the GIPS Policies & Procedures document to ensure it is current and reflects any recent or anticipated changes in the GIPS standards or in the firm s business practices. Prepare Compliant Presentations (Appendix B) for all marketed composites. 4 GIPS Committees and Working Groups A review of standard practices

5 Appendix advent.com Example #2 Single firm claiming compliance $50b AUM 80 composites, > 10,000 accounts, traditional strategies GIPS Committee The GIPS Committee has affirmed that [FIRM] is to uphold the GIPS standards and employees must adhere to these Policies and Procedures, and the GIPS standards in the formulation, development, and presentation of material representing [FIRM S] composites. The GIPS Committee has determined the following delineation of responsibilities: Client Services Is to implement these GIPS standards and policies when producing presentations and related materials, and maintain records of presentations and other communications. Those who present to clients, including but not limited to, Client Service Officers and the Portfolio Managers, must observe the GIPS standards and [FIRM S] policies in response to required and recommended elements of the GIPS standards. Operations Is responsible for working with [SOFTWARE VENDOR] to create and monitor the calculation of performance returns. [SOFTWARE VENDOR] calculates performance, maintains records, assigns accounts, retains documentation of performance calculations, and maintains the data supporting performance calculations, composite assignment, and changes to composite assignment. (PLEASE SEE APPENDIX C FOR DETAILED PROCEDURES). Trading Is responsible for alerting Operations and Compliance of composite membership edits, strategy revisions, and all composite construction edits. Compliance Is responsible for reviewing and monitoring composite procedures and all testing and composite reconciliation. Compliance will review composite assignments with Operations and Trading, as well as any changes in composite policies or disclosures, and then present to the Composite Committee for approval. Compliance is to maintain the Policies and Procedures, revise for changes to the GIPS standards, advise all parties of new and revised standards and interpretations as provided by CFA Institute, and maintain a list and description of all composites. Questions regarding the Policies and Procedures and the GIPS standards may be forwarded to the Chief Compliance Officer. GIPS Committees and Working Groups A review of standard practices 5

6 Appendix Example #3 Broad company with multiple, underlying GIPS firms > $500b AUM >250 composites, 1,000 accounts, traditional and alternative strategies GIPS Committee The Oversight Committee is charged with ensuring that the [FIRM] GIPS Firms (BOUTIQUE #1 and BOUTIQUE #2) maintain their GIPS-compliant status. The Committee will meet at least annually to review all new and terminated accounts/ composites, changes to composites, benchmarks, procedural updates, and other issues raised by the GIPS Working Group. The GIPS Working Group meets on a monthly basis to discuss and resolve operational issues, systems enhancements, treatment of new accounts, etc. The Policy and Procedures Manual is updated as necessary to reflect changes in our policies and procedures related to the GIPS standards. GIPS Oversight Chair Operations Information Technology Compliance Legal GIPS Working Group Chair [Multi-boutique committee, could be representatives from each boutique] Operations Information Technology Compliance Legal Daily GIPS Responsibilities It will be the responsibility of each of the separate divisions to maintain individual daily records for the accounts managed by their group. Position reconciliation with custodian Pricing maintenance Inspect for significant cash flows On a monthly basis, summary data (market values and returns) will be rolled up to a consolidated database. In addition, records of all account status changes must be maintained by the separate divisions. The account status changes include new accounts, terminated accounts, and existing accounts with investment guideline changes. The account status changes should be reviewed by the GIPS Oversight Committee during the scheduled meetings. Below lists the entities and the person with the daily GIPS responsibilities: BOUTIQUE #1 [NAME] BOUTIQUE #2 [NAME] 6 GIPS Committees and Working Groups A review of standard practices

7 Appendix advent.com Example Committee Meeting Minutes Single firm claiming compliance $3b AUM 15 composites, 50 accounts, traditional strategies GIPS Committee MINUTES for 12/29/17 Members in attendance [NAMES] Meeting minutes Minutes from the 9/27/17 meeting were approved. [NAME] has been added to the invite list. Deliverables Update To address any miscommunication issues for marketing data, Marketing, Compliance, and Performance will meet on a quarterly basis. Charter has been revised to assign voting rights to only Marketing, Compliance, and Operations. Added policy to include firm name change disclosure for one year on marketing materials. Errors - One to report [XYZ] Composite Background: Error found when reviewing historical composite. There was a change to one of the portfolios, but the composite was never updated to reflect the change. Dates Impacted: 2016 Annual Data. Impact: -39 bps. Based on our Error Correction policy, the error was neither greater than 50 bps nor 5% of relative performance and thus deemed immaterial. Verification Update Currently compiling final information ACA Performance has all of the information they need, they are completing their final assessment. On track for 12/31/17 completion. [XYZ] Composite Update Reviewing portfolio-level data for January - September Working with PMs to define family groupings for composites, then will add portfolios to composites. Timeline of completion discussion - to be completed 1Q [SYSTEM] Upgrade - First half of 2018 GIPS Committees and Working Groups A review of standard practices 7

8 Ultimately, a GIPS Committee can be a valuable tool to ensure that a firm achieves and remains in compliance with the GIPS standards. About ACA Performance Services In June 2017, ACA Performance Services (a unit of ACA Compliance Group) acquired the investment performance practice of Ashland Partners, uniting the top two GIPS verification firms in the world. With over 70 consultants, ACA Performance Services is the largest team of professionals solely dedicated to GIPS verification and investment performance services. About SS&C Advent SS&C Advent, a business unit of SS&C, is helping over 4,300 investment firms in more than 50 countries from established global institutions to small start-up practices to grow their business and thrive. Delivering unparalleled precision and ahead-of-the-curve solutions for more than 30 years, we help our clients minimize risk, work together seamlessly, and shape the future of investment management. Advent Portfolio Exchange (APX), our integrated portfolio management platform, helps hundreds of firms manage GIPS compliance. For more information visit advent.com info@advent.com 2018 SS&C Technologies Holdings, Inc This communication is provided by SS&C Advent for informational purposes only and should not be construed as or relied on in lieu of, and does not constitute, legal advise on any matter whatsoever discussed herein. SS&C Advent shall have no liability in connection with this communication or any reliance thereon. Copyright 2018 by ACA Performance Services, LLC ( ACA Performance ). All rights reserved. Materials may not be reproduced, translated, or transmitted without prior written permission. ACA Performance claims exclusive right of distribution and ownership of intellectual property herein, and this document may be not distributed to or used by any person, business, or entity whose principal business competes with that of ACA Performance. Information herein should not be construed as legal or regulatory advice. CFA, CIPM, GIPS, and Global Investment Performance Standards are trademarks owned by CFA Institute.