Global Investment Performance Standards A practical point of view on implementation and verification GIPS Standards Workshop

Transcription

1 Global Investment Performance Standards A practical point of view on implementation and verification GIPS Standards Workshop 25/10/2017 Aspire with assurance

2 Contents Background Our approach to certification List of required documentation and Q&A 2

3 Background 3

4 From a Benchmark Practice Consultants and Institutionals consider compliance and verification when selecting managers Globalization Which standards? AIMR-PPS SPPS (Switzerland) DVFA (Germany) UKIPS (UK) Rationale for creation of Global Investment Performance Standards GIPS 4

5 To the GIPS Standards January 2006 AIMR-PPS were completely eliminated January 2011 Revised GIPS Standards January 2000 Standards effective April 1999 Standards adopted 1995 Subcommittee formed GIPS Standards = the unique set of Standards used worldwide 5

6 Fundamentals of Compliance Definition of the Firm Foundation for firm-wide compliance Firms can only define themselves as follows: Defined as an investment firm, subsidiary or division held out to clients or prospective clients as a distinct business entity Encouraged to adopt broadest, most meaningful definition of the Firm and consider how it is held out to the public Reason for defining GIPS at Firm level is to avoid partial disclosure of performance no cherry-picking of the best performing portfolios 6

7 Fundamentals of Compliance (cont d) Definition of the composites A composite includes all discretionary portfolios managed for third parties, representing a similar investment mandate, objective or strategy Which induces: All actual discretionary portfolios should at least be included in a composite No cherry-picking The transfer of a portfolio from a composite to another must be documented and justified Discretion means no major restriction imposed by the customer and having a significant impact on the full and free implementation of the investment process, such as prior submission of the management decisions to the client, Even more than the restriction itself, the level of acceptability of the restriction has to be defined. The existence of specific restrictions may lead to the opportunity to create dedicated composites (e.g. portfolios "sin stocks"). 7 7

8 Fundamentals of Compliance (cont d) Policies and Procedures Requirement to document, in writing, policies and procedures used in establishing and maintaining compliance Form an important component of compliance manual A verification report must mention: 1 The compliance with all composite construction requirements of the GIPS Standards on a firm-wide basis; 2 The design of the policies and procedures to calculate and present performance in compliance with GIPS Standards. 8

9 Fundamentals of Compliance (cont d) Calculation methodology Total return, including realized and unrealized gains and losses plus income, must be used. Time-weighted rates of returns that adjust for external cash flows must be used. Both periodic and sub-period returns must be geometrically linked. External cash flows must be treated according to the Firm s composite-specific policy. At a minimum For periods beginning 1 January 2010, Firms must value portfolios on the date of all large external cash flows. Portfolio must not be valued more frequently than required by the composite specific valuation policy. 9

10 GIPS Advertising Guidelines Advertisements Advertising rules effective June 2004 for those including a claim of compliance Requirement to present 1, 3, and 5 year (or since inception) annualized composite returns OR 5 years (or since inception) of annual composite returns Compliant Materials to clients/prospects Must provide compliant presentation to all clients and prospects Provide list and description (abbreviated definition) of composites upon request Firms to include performance of sub-advisor, provided discretion exercised over sub-advisor 10

11 GIPS Advertising Guidelines (cont d) Should not present a compliant presentation of the composite to prospects known not to meet the composite s minimum level Others Statements referring to the calculation methodology used in a composite presentation as being in accordance, in compliance, or consistent with the GIPS, or similar statements, are prohibited The GIPS compliance statement for advertisements : [insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS). 11

12 GIPS Standards : Evolution and Forecasts May 2012 June 2014 Guidance Statement on Alternative investment strategies Guidance Statement of the GIPS Standards to assets owners * March 2017 Guidance Statement on Broadly distributed pooled funds Getting Ready for GIPS 2020 Edition January 2011 Revised GIPS Standards New exposure drafts : July 2018 : Guidance Statement on verifier independence January 2019 : Guidance Statement on risks * Revised and adopted on August 2017 January 2019 : Guidance Statement on overlay strategies 12

13 Conclusion A powerful and differentiating marketing tool for early movers Reasons for GIPS Compliance A must-have for RFPs launched by institutional investors An industry-wide response to clients increasing need for transparency, good governance, and structuring exercise 13

14 Our approach to certification 14

15 Approach to compliance Illustrative steps to a GIPS report : Steps performed by the Asset Manager or with Deloitte s assistance Steps only performed by the Asset manager Steps performed by Deloitte Internal investigations and interviews Involve Marketing and Sales but also IT, Accounting, and Asset Management Diagnosis Review of processes, controls and documentation Gap analysis Proposition of solutions (firm definition, composite building, ) or suggestions (marketing strategy, ) Validation of propositions Project management Implementation Procedures manual Internal controls Set-up Input data and performance calculation (simple or sophisticated tool) Reporting preparation following GIPS guidelines Transfer of know-how to internal team Verification Verification of the adequacy of procedures with retained solution Quality review of data and composites Verification of performance calculations Verification of mandatory information Validation of GIPS report and advertising documents Reporting to Steering Committee / feedback from users to improve N

16 Approach to compliance Diagnosis Diagnosis The diagnosis process is tailored to each manager Working closely, our teams define the scope covered which accurately reflects the organization and that can withstand future developments Through investigation, interviews and documentation review, a gap analysis is realized and provides you with propositions covering organizational, technical as well as operational aspects. insights relating to utilization of GIPS report (marketing plan) Typical points for discussion How many types of investment strategies/composites does the firm manage and are these funds? Are they audited? Could your management team be confused with other investment management teams? Are your procedures regarding Investment management processes available in writing? Further to analysis of documentation and workshop: definition of the firm drafted potential need in terms of procedures documentation identified 16 16

17 Approach to compliance - Implementation Implementation Best practice advises for a project manager to stay in charge of following the implementation project, to ensure smooth and efficient results. This phase is an opportunity to finalize the procedures manual which: presents rules and the approach adopted to comply with the requirements of the Standards Identifies and describes the procedures for maintenance and supply databases Data collection and handling is also performed before actual performance calculation, including all controls described in the procedures manual. Typical points for discussion Are portfolio performances calculated on a daily basis and under which format (Excel?) Are accruals (fees, interest income, etc.) considered in the calculations Is there an independent valuation for each investment? If confirmed with the analysis of documentation and further workshop: If needed, implementation of adjustments (i.e. accruals) and calculation of performances over the period could be started Some examples of procedures manuals 17 17

18 Approach to compliance Verification Verification A natural step and a quality stamp for your RFPs Certification brings significant added value to an organization by sharing verifier s experience and issuing constructive recommendations. Certification approach based on our global audit methodology, adapted to this activity. For all subjects (firm, composite quality of data and reporting), certification process consists in three phases: examination, surveys, and synthesis. The survey part is the heart of our approach to cover critical aspects: compliance, consistency and durability Typical points for discussion Feasibility of examination and diagnosis in one single phase Confirmation that definition of the firm should not present too many issues Confirmation of surveys extent based on composites numbers Objective is the implementation phase should prepare as much as possible the review process for certification. No surprises should come from certification, rather a validation of chosen hypothesis

19 Approach to compliance Verification Verification Verification details Definition of the firm (past & present) Risks Validity Response to risks Consistency of internal organisation and image vis à vis third parties Update of composites All portfolios are at least in one composite Definition of nondiscretionary management Relevance of indices Completeness - Validity Recording Cut-off Completeness Completeness - Validity Validity IT review of database and analysis of modifications Sample testing for under- or overstatement Sample testing for over-evaluation Statistical review Control of composite inclusion and exclusion dates Reasonableness of composite Transfer of portfolios Calculation methodology and verification of performance Accounting Validity - Completeness Validity Cut-off Completeness - Validity Justification of inclusion and exclusion dates Substantive testing (statistical review, investment processes analyses ). Testing for understatement Analysis of modifications Review of information system and substantive testing Reliability of information Completeness - Validity Review of appendices 19 19

20 Our Performance Measurement Practice Extensive experience in implementation consulting, assisting clients with GIPS Standards compliance and verification. Deloitte has a global GIPS practice with centers of specialization in Toronto, New York, Boston, London, Paris, Luxembourg Deloitte has sponsored the Annual AIMR and then GIPS Conference

21 GIPS past and present Clients in EMEA BNP Paribas AGF Asset Management Crédit Agricole Asset Management Wafa Gestion AXA Investment Managers Banque Populaire Credit Lyonnais Asset Management State Street CPR Asset Management CP2G Rothschild CDC IXIS Asset Management Attijari Management SINOPIA Overlay Asset Management Lyxor Allianz Natixis Unibank ABN AMRO BlackRock LEGG MASON RBC JPMorgan MFS Investment Management Julius Bär Merrill Lynch 21 21

22 Your contacts at Deloitte Luxembourg Audit Audit Laurent Fedrigo Partner Tel: Mail: Marine Maigrat Associate Tel: Mail: Advisory & Consulting Isabelle Pasque Director Tel: Mail: 22 22

23 List of required documentation and Q&A 23

24 List of required information and documentation Engagement letter Verification of the firm and initial diagnosis Verification of figures* Name of the firm Contact names and addresses Supporting documents in order to understand the Firm, including the corporate structure of the Firm and how it operates Assets under Management System used Confirmation of independent valuation process Sample of performance calculation Definition of the firm Definition of discretionary management Complete list of composite descriptions SSAE 16 / ISAE 3402, if any Audit report of the funds for the years concerned by the certification Copy of the Firm s policies and procedures used to establish and maintain compliance with the GIPS standards Supporting documents for: the inception date of the firm Details of Assets under Management Calculation spreadsheets (incl. adjustments, gross and net of fees) Underlying portfolios Confirmation of the assets by third party (i.e. custody) Draft GIPS report (some samples provided) Any supporting documentation in and out portfolios (if any) investment policy discretionary management allocation to a specific composite Independent * Depending on the results of our tests, we may ask additional supporting documentation 24

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