In the world of investment management, adhering to the Global Investment Performance Standards (GIPS®) is crucial for ensuring transparency and credibility. A recent survey conducted by ACA, which included responses from 700 GIPS-compliant firms, sheds light on the current practices and concerns in performance calculations and other pressing topics within the sector.
The surveyed firms are categorized based on their assets under management (AUM):
- Wealth firms: those with up to $1bn AUM
- Core firms: those managing between $1bn and $50bn AUM
- Diversified firms: firms overseeing more than $50bn AUM
Key trends emerged from the survey, highlighting varying practices across different types of firms.
- SEC Marketing Rule and Performance Calculation The SEC Marketing Rule continues to shape practices within the industry. Wealth firms primarily use actual fees (50%) for net-of-fee performance calculations, whereas diversified firms often use model fees (60%). An increasing number of firms (50% of those surveyed) are now using the highest potential fee to calculate net-of-fee performance, especially since the SEC’s recent Risk Alert, which criticized the use of lower-than-offered fees as potentially misleading.
- Changes in Performance Systems Technological advancements are prompting changes across the industry, with about 20% of firms having updated their performance systems in the last five years. Looking forward, another 15% of firms expect significant system upgrades, reflecting a trend towards outsourcing complex performance calculations to specialized providers for better accuracy and flexibility.
- GIPS Compliance for Limited Distribution Pooled Funds (LDPFs) The survey shows a clear divide in how wealth and diversified firms handle LDPFs within GIPS frameworks. While 70% of wealth firms choose not to include LDPFs in composites, 80% of diversified firms do. This discrepancy highlights a lack of consensus and is a focal point for regulatory bodies demanding more transparency.
- Responsibility for GIPS Compliance GIPS compliance often falls on the operations team, but there is a significant push for firm-wide involvement. Larger firms are more likely to have dedicated oversight committees, including members from various operational and compliance departments, ensuring a holistic approach to compliance and governance.
- Challenges in Compliance and Data Management The survey identifies data management and resource constraints as major hurdles. Innovations in technology and outsourcing are seen as vital solutions to these challenges, helping firms manage composite construction, compliance alignment, and outlier review processes more effectively.
As the sole governance, risk, and compliance (GRC) firm combining regulatory compliance advisory with deep performance calculation expertise, ACA Group offer unique services tailored to meet these challenges. Its offerings include firm-wide verifications, focused reviews of calculation methodologies, and managed performance services, ensuring that firms not only comply with GIPS standards but also stay ahead of regulatory curves.
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