Practical Portfolio Performance Measurement and Attribution, 3rd Edition

7Performance Presentation Standards

Without standards, there can be no improvement.

Taiichi Ohno (1912–1990)

A lot of the evil in the world is actually not intentional. A lot of people in the financial system did a lot of damage without intending to.

George Soros (1930–)

WHY DO WE NEED PERFORMANCE PRESENTATION STANDARDS?

The CFA Institute (formerly known as the Association for Investment Management and Research or AIMR) sponsored the creation of the Global Investment Performance Standards (GIPS^®) to provide an ethical framework for the calculation and presentation of the performance history (or track record) of asset management firms. GIPS are voluntary standards based on the fundamental principles of full disclosure and fair representation of performance returns.

The need for the standards first became apparent in the United States in the mid‐1980s. Asset owners, in seeking firms to manage their assets, would obviously see a large number of presentations from asset managers, the overwhelming majority of whom presented above average performance, begging the question, “Where are the below average managers?” The answer, unfortunately, was that some of the below average managers were presenting above average returns.

Asset managers were very selective about the investment track records they presented to prospective clients. Most marketing managers would be well aware over which time period they performed best and would consequently “cherry pick” the best period to show performance. ...