Will GIPS Compliance Become The Norm For Alt Asset Managers In 2020?

With the 2020 GIPS (Global Investment Performance Standards) public comment period having come to a close, asset managers around the world are preparing to comply with the updated standards, the first update in a decade. Global consulting firm ACA recently conducted a survey on GIPS compliance preparedness with eVestment, which found that alternative asset managers like hedge funds and private equity firms are expected to increase their adoption of GIPS in 2020 as they’re finding greater demand from clients to do so. Key findings include:

GIPS

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  • 67% of alternative asset managers believe investors and consultants will ultimately require alternative managers to comply with GIPS.
  • 94% of asset management firms that claim compliance receive a verification, up from 87% who reported being verified in the 2014 survey
  • Among investors and consultants, 75% said third-party verification is important or very important in their manager search process.
  • Institutional investment industry is moving toward more transparency across all asset classes.

[REITs]

Q3 hedge fund letters, conference, scoops etc

Justin Guthrie, Head of Performance Services, ACA Compliance Group delves into the results in the quotes below. Do you have any interest in speaking with Justin about why we can expect for alternative asset managers to increasingly adopt GIPS in 2020?

“When it comes to traditional fixed income and equity mandates, nearly 80% of firms are GIPS-compliant. But in sharp contrast, that statistic for alternative asset managers is less than 5%. In an age where institutional investors demand increased transparency across asset classes, I believe private equity firms, hedge funds and the real estate investment industry will find themselves changing their tune around voluntary compliance ahead of the updated 2020 GIPS standards coming into effect. We’ve seen first-hand from our client base that institutional investors are demanding GIPS compliance as part of the RFP and overall due diligence process from alternative asset managers, which is precisely why the GIPS Executive Committee has been working hard to reorient the standards to accommodate a wider array of asset classes.

The world of private equity would particularly benefit from the broad adoption of the GIPS standards, as the industry faces a lack standardized methodologies and consistency for the presentation of IRR results. There has been much concern around lines of credit and how private equity firms disclose performance results, including differences in the MOIC calculation and well as treatment of affiliated capital – the 2020 GIPS standards provide a framework for consistency, and prevent the comparison of apples to oranges when it comes to reporting results to investors.”

–Justin Guthrie, Head of Performance Services, ACA Compliance Group



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver