Practical Portfolio Performance Measurement and Attribution, Second Edition

11

Performance Presentation Standards

There are three ways of losing money – horses, women and taking the advice of experts, Horses – that is the quickest women – that is the most pleasant; but taking the advice of experts – that is the most certain.

Apocryphally attributed to M. Pompidou

WHY DO WE NEED PERFORMANCE PRESENTATION STANDARDS?

The CFA Institute (formally known as the Association for Investment Management and Research or AIMR) sponsored the creation of the Global Investment Performance Standards (GIPS, 2005) 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. Pension funds, in seeking firms to manage their assets, would obviously see a large number of presentations from asset managers, the overwhelming majority of which presented above average performance. This begged 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 potential clients. Most marketing managers would be well aware over which time period they performed best and would consequently “cherry pick” the ...