The Global Investment Performance Standards (GIPS) are a set of ethical standards and principles for the calculation and presentation of investment performance for investment management firms. The GIPS standards are designed to provide a globally accepted framework for fair, consistent, and transparent reporting of investment performance, enabling investors to make meaningful comparisons between different investment managers worldwide.

Key features of the Global Investment Performance Standards (GIPS) include:

1. **Objectives:**
– The primary objective of GIPS is to promote fair representation and full disclosure of a firm’s investment performance. It aims to provide prospective clients with accurate and comparable information about the historical performance of investment management services.

2. **Applicability:**
– GIPS is applicable to investment management firms that manage assets on behalf of external clients. This includes firms managing public funds, private accounts, mutual funds, and other types of investment vehicles.

3. **Definition of the Firm:**
– GIPS defines the “firm” as the investment management organization that is responsible for managing the assets. The firm is expected to comply with the GIPS standards on a firm-wide basis.

4. **Calculation Methodology:**
– GIPS provides guidelines on how to calculate and present investment performance, including the calculation of returns and the inclusion of fees and expenses. The standards aim to ensure consistency and comparability across different firms.

5. **Historical Performance Presentation:**
– Firms following GIPS are required to present historical performance over specific time periods, allowing clients to assess performance over various market conditions.

6. **Composite Construction:**
– GIPS requires the creation and presentation of composites, which are groups of portfolios with similar investment objectives, strategies, and risks. This helps in presenting performance data that is relevant to specific client groups.

7. **Disclosure Requirements:**
– GIPS establishes specific disclosure requirements, including the inclusion of relevant information about the firm, the definition of the firm, the definition of the composite, and other important details that investors need to evaluate performance.

8. **Verification:**
– Firms claiming compliance with GIPS are encouraged to undergo third-party verification by an independent verifier. Verification helps ensure that the firm’s processes and procedures are in compliance with GIPS.

9. **Global Adoption:**
– GIPS is a globally recognized standard, and many investment management firms around the world voluntarily adopt and adhere to these standards. This global acceptance promotes consistency and comparability of investment performance reporting across borders.

10. **Regular Updates:**
– GIPS is periodically updated to reflect changes in industry practices and evolving market conditions. Investment management firms are expected to stay current with the latest version of the standards.

GIPS compliance is voluntary, but firms that claim compliance are expected to adhere to the standards in their entirety. Compliance with GIPS can enhance the credibility of an investment management firm and improve the transparency of performance reporting for clients and prospective investors.