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The Role of GIPS in the benchmarking & The Role of GIPS in the benchmarking & monitoring of Hedge Fund performancemonitoring of Hedge Fund performance

Carl Bacon

1st July 2008

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Why are Standards needed?Why are Standards needed?

• “All” asset managers above average• “Cherry picking” accounts• “Cherry picking” time periods• Self-selection• Misleading advertising

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Misleading AdvertisingMisleading Advertising

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GIPS ObjectivesGIPS Objectives

• To obtain worldwide acceptance of standards for calculating & presenting results

• To ensure accurate and consistent data• To promote fair, global competition among

investment firms• To promote industry self-regulation on a global

basis

• GIPS are Ethical standards

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GIPS (Why should managers do it?)GIPS (Why should managers do it?)

• Global Passport• Marketing advantage• Client driven (Level –playing field)

• Self-Regulation• Internal Control (Good practice)

– More efficient– Better data/ information– Risk control

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GIPS ( Why clients should demand it?)GIPS ( Why clients should demand it?)

• Basic Hygiene factorIf not compliant, is the asset manager?:

i) Not committed to ethical standards

ii) Controls so weak they cannot achieve compliance

iii) Not prepared to make the appropriate investment

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Who are Standards aimed at?Who are Standards aimed at?

• All “users” of Investment Performance Information– Institutional– Private Clients– Retail, if not covered by existing regulations

• All asset/product types– Equity/ Fixed Income/ Multi-currency– Real Estate/ Property– Venture Capital/Private Equity– Derivatives/Overlay/Leverage– Hedge Funds/ Alternative Investments/ Absolute Return

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Endorsed Country SponsorsEndorsed Country Sponsors

Australia Austria Belgium Denmark France Germany Hong Kong Hungary Ireland Italy

Japan Kazakhstan Korea Liechtenstein Luxembourg Micronesia Netherlands New Zealand Norway Poland

Portugal Singapore South Africa Spain Sweden Switzerland UK Ukraine U.S. & Canada

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Necessity of StandardsNecessity of Standards

• In summary, the Standards:– Ensure comparability for the investor– Promote credibility for and build trust within the

investment management industry– Assist in global marketing efforts

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Does GIPS apply to hedge funds?Does GIPS apply to hedge funds?

• Clients are not interested• Composites not relevant• No specific requirements in the standards• Firm, not fund specific

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Does GIPS apply to hedge funds?Does GIPS apply to hedge funds?

• More institutionalised• Consistency

– Methodology– Valuation

• Independent Verification

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Alternative Strategies Working GroupAlternative Strategies Working Group

• Performance Fees• Side pockets• Master-feeder structures• Risk measures

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ResourcesResources

GIPS Website: www.gipsstandards.org

CFA Institute Website: www.cfainstitute.org

GIPS Helpdesk: gips@cfainstitute.org

GIPS Handbook: