CFA Institute is a global not-for-profit association of investment professionals with the mission of leading the investment profession globally by setting the highest standards of ethics, education, and professional excellence. CFA Institute has a long-standing history of and commitment to establishing a broadly accepted ethical standard for calculating and presenting investment performance based on the principles of fair representation and full disclosure. The goals in developing and evolving the Global Investment Performance Standards (GIPS®) are to establish them as the recognized standard for calculating and presenting investment performance around the world and for the GIPS standards to become a firm’s “passport” to market investment management services globally.

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The 2010 edition of the GIPS standards includes modifications to existing requirements both to policies and disclosures, as well as one new calculation statistic that must be presented. There are primarily two groups of changes with separate effective dates to highlight.

• Portfolio Valuation (1.A.3): For periods beginning on or after 1 January 2010, portfolios must be valued on the date of all large cash flows. The firm must define Large Cash Flow for each composite to determine when portfolios in that composite must be valued.
• Portfolio Valuation (1.A.4): For periods beginning on or after 1 January 2010, firms must value portfolios as of the calendar month end or the last business day of the month.
• Composite Calculations (2.A.7): For periods beginning on or after 1 January 2010, composites must be calculated by asset-weighting the individual portfolio returns at least monthly.
• Carve-outs (3.A.8): For periods beginning on or after 1 January 2010, a carve-out must not be included in a composite unless the carve-out is managed separately with its own cash balance.
• Error Corrections (Guidance Statement): Firms must establish written error corrections policies and procedures, to be applied to errors found in the firm’s Compliant Presentations. Materiality must be defined in the error corrections process.

Please note that this group of required changes must be implemented in Compliant Presentations that include performance results for periods after 31 December 2010; early adoption is encouraged.

• Fair Valuation (0.A.5, Chapter II B.5): Beginning on or after 1 January 2011, portfolios must be valued in accordance with the definition of fair valuation and the GIPS Valuation Principles (in Chapter II of the GIPS standards). Firms must document their valuation policies, procedures, methodologies, and hierarchy (including any material differences from guidance), and must apply them consistently.
• Client Asset Existence (0.A.5): Documented policies and procedures must include ensuring the existence and ownership of client assets. Policies and procedures used in establishing and maintaining compliance with GIPS standards must be documented in writing.

• Compliance Claim (4.A.1): The required compliance statement has been modified and now requires firms to explicitly state whether or not they have been independently verified. There are essentially three options for the compliance statement language:
  1. firms that have been verified
  2. firms that have been verified and also have composites that received a performance examination
  3. firms that have not been verified
  For those firms that have been verified, there is an additional paragraph required to be included which briefly describes what a verification assesses. All compliance statements begin with a modified general statement that now reads, “[Insert name of FIRM] claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards.”
• Composite Description (4.A.3): Must include all key features of the composite and must include enough information to allow a prospective client to understand the risks and criteria used for composite strategy. Firms may refer to Appendix C of the GIPS handbook which provides several pages of example composite descriptions. These are much more robust than those previously found in the 2006 handbook.
• Benchmark Description (4.A.4): General information regarding the investments, structure, and/or characteristics of the benchmark. The description must include the key features of the benchmark. If the name of the benchmark is a readily recognized index, no other information is necessary for GIPS purposes.
• Policies Available Disclosure (4.A.12): Firms must disclose “Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.” This is a modified requirement from the former requirement to disclose "Additional information regarding policies for calculating and reporting returns is available upon request." (Make sure when you update this disclosure that you have incorporated such policies and can provide the information, if requested.)

• Composite Presentation for Periods less than One Year (5.A.1.c-d.): For composites beginning or on January 1, 2011 or later, the “stub period” (period less than a 12 months) from the first year must be presented. In addition, for composites terminating on or after January 1, 2011, the “stub period” in the year of termination must be presented.
• Composite and Benchmark Standard Deviation (5.A.2): A 3-year Annualized Ex-Post Standard Deviation is now required for both the composite and benchmark. Firms are required to use monthly returns and present this statistic as of each annual period end beginning 1 January 2011. This is not required to be shown for all historical periods, although it is recommended to do so if the data is available.
• If the 3-year annualized ex-post standard deviation is not relevant or appropriate, an additional 3-year ex-post risk measure for the composite and benchmark should be presented. The periodicity of the composite and benchmark must be identical when calculating the ex-post risk measure. The firm must describe why ex-post standard deviation is not relevant or appropriate, the additional risk measure that is presented, and why it was selected.
• If 36 monthly returns are not available to perform this calculation, disclosure is required.
• Real Estate SI-IRR (6.A.17-18) and additional statistics (6.A.25): Real estate closed-end fund composites are required to show (in addition to time-weighted returns) since-inception (SI) internal rates of return, using at least quarterly cash flows. In addition, firms must present annually a number of additional statistics, including SI paid-in capital, SI distributions, cumulative committed capital, etc.
• Private Equity SI-IRR (7.A.4): Private Equity SI-IRR calculations must now use daily (vs. monthly) cash flows. Stock distributions must be included as cash flows and valued at distribution.

• If model or actual investment management fees are used and/or if returns are net of any performance based fees.
• If material, presence of short positions including frequency of use and sufficient measures to identify risk.
• If the firm or composite is redefined, the date, description, and reason for the redefinition.
• Added flexibility to the disclosure of the details of the treatment of withholding taxes; disclosure is now only required “if material.”
• Describe any known material differences in the exchange rates or valuation sources used among portfolios within a composite and between the composite and the benchmark.
• For composites with an inception or termination date of 1 January 2011 or later, when the initial/final period is less than a full year, returns for the partial year-end must be included in the compliant presentation.
• If subjective unobservable inputs for valuing portfolio investments were used and if material, must describe the use.
• Disclose if the composite’s valuation hierarchy materially differs from the recommended hierarchy in the GIPS Valuation Principles.

• If non-compliant periods are shown prior to 1/1/2000, the firm must still disclose periods of non-compliance. However, the “reason” is no longer required.
• If the firm has adopted a significant cash flow policy, it must still disclose how the firm defines a significant flow and for which periods. However, the grace period, redefined policies, and that additional information is available upon request are no longer required disclosures.