Recent Industry Trends: Alternative Asset Managers and the GIPS Standards
Every few years, ACA's Performance Services Practice and eVestment release a joint survey that queries industry participants on the value of compliance with the Global Investment Performance Standards (GIPS®). One continual trend that we have noticed is an uptick in interest among alternative asset managers in the GIPS standards. In light of the soon-to-be-released final version of the 2020 GIPS Standards on June 28, 2019, it seems relevant to revisit the survey, as we believe the current trend will be amplified in the non-traditional asset space.
As the GIPS standards continue to grow, this survey serves an important purpose in identifying:
- Who claims GIPS compliance and why?
- Who receives independent third-party verification?
- What value do consultants and investors place on compliance with the GIPS standards?
The 2018 survey revealed the following highlights 74% of traditional asset managers claim compliance with the GIPS standards, with 87% of those firms receiving a verification. These high rates are largely driven by consultant and investor demand as evidenced by the 75% of consultants/investors that exclude managers from their searches some or all the time if the managers do not claim GIPS compliance (up from 66% in the 2014 survey).
Historically speaking, alternative asset managers – including private equity, hedge fund, real estate, credit, and asset owners – have claimed compliance with the GIPS standards at very low rates. However, as institutional investors demand more transparency across all asset classes, this appears to indeed be a thing of the past. Over time the surveys have shown increased interest among managers in such asset classes. For example, the 2018 survey revealed 75% of consultants expected hedge fund and private equity fund managers would be required to claim compliance with the GIPS standards in the coming years. Additionally, 94% of consultants/investors believed more pension funds, foundations, endowments and other asset owners will claim GIPS compliance when the 2020 GIPS Standards are released.
In fact, a major focus of the 2020 GIPS Standards is to make the GIPS standards “relevant and applicable” to all asset managers. This should, of course, facilitate compliance more broadly. Combined with the survey findings, we would expect the trend to continue. We have already seen a wave of interest in the GIPS standards from credit managers, and California Public Employees’ Retirement System (CalPERS) announced its claim of compliance with the GIPS standards in March 2018. In addition to the survey, eVestment has also reported early signs of asset movement from cash and more liquid equity strategies to asset classes that have traditionally been viewed as ‘alternative’ in nature. We suspect many firms will find the 2020 GIPS Standards appealing, as there is more flexibility around performance reporting (money-weighted vs. time-weighted returns) and it should be easier for private equity, and others where managers control the timing of cash flows, to claim GIPS compliance.
Source: eVestment Market Lens
The release of the 2020 GIPS Standards should propel more alternative asset managers towards GIPS compliance. Time will tell, however, and the next Value of GIPS Compliance survey scheduled to be published in late 2020 should provide some interesting observations. For more information on this matter, please contact us here.
About ACA's Performance Services
ACA's Performance Services Division provides GIPS compliance verification and consulting services to investment managers around the globe. Our team — comprised of more than 80 professionals with extensive GIPS standards and performance experience — is the largest group of GIPS compliance professionals in the world solely dedicated to GIPS compliance verification and related services.
About the Author
Douglas Finlay, CIPM, is a Director with ACA's Performance Services Practice. Douglas joined ACA in 2007 and has worked with over 50 clients including several asset owner clients. Douglas earned his B.A. in History from the University of the South (Sewanee). He also holds an M.B.A. with a concentration in Finance from the University of Tennessee at Chattanooga, where he was awarded the John C. Stophel Distinguished Student Award. He is a member of CFA Institute and the CFA Society of East Tennessee.