Make the most out of your claim of GIPS compliance - Incorporating the Global Invesment Performance...

Incorporating GIPSInto Sales & Marketing

January 23, 2014TSG Monthly Webinar

David Spaulding, CIPMJohn Molesphini

©The Spaulding Group, Inc.www.SpauldingGrp.com 1

Our Speakers

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David Spaulding, CIPM, is an internationally recognized authority on investment performance measurement. He’s the Founder and CEO of The Spaulding Group, Inc., and founder and publisher of The Journal of Performance Measurement®.

As SVP of eVestment, John Molesphini consults with clients to identify the best analytics and database solutions to meet their needs. Prior to eVestment, John held leadership roles in marketing and client service for Ramsey Quantitative Systems (hedge fund) and INVESCO.

What we’ll discuss (eVestment)

eVestment will share insights on how frequently GIPS compliance matters in manager selection – ultimately impacting asset flows.

In addition, we will look at data from the eVestment database to assess current levels of GIPS compliance by size, location and primary focus on the firm.

Finally, we will speak to success factors for updating databases with regard to GIPS and other criteria most frequently searched by institutional investors.©The Spaulding Group, Inc.

www.SpauldingGrp.com 3

What we’ll discuss (TSG)

The opportunities available to leverage compliance with GIPS into the firm’s sales and marketing efforts.

The role the sales and marketing team(s) can (should) play in the compliance effort.


GIPS COMPLIANCE – HOW IMPORTANT? WHAT THE DATA SAYS…

John Molesphini, SVP, eVestment

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Poll 1: Do you currently claim compliance with GIPS?

A. YesB. No

Poll 2: If your firm claims compliance, has your Firm been Verified?

A. YesB. No

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Percentage of firms that are GIPS Compliant

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Source: eVestment database 12/2013

Firm GIPSCompliance

Percentage of Firms Count of Firms

GIPS Compliant

Non-Compliant

GIPS Compliant

Non-Compliant

Total

All Countries 72.4% 27.6% 1190 453 1643

Does compliance vary with size of firm? Absolutely

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Source: eVestment database 12/2013

GIPS Compliance by Q3 2013 AUM

in USD


GIPS Complian

t

Non-Complian

t

GIPS Complian

t

Non-Complian

tTotal

≥ 100 B 88.8% 11.2% 79 10 89

≥ 10 B, < 100 B 85.3% 14.7% 198 34 232

≥ 5 B, < 10 B 81.3% 18.7% 100 23 123

≥ 1 B, < 5 B 79.5% 20.5% 240 62 302

≥ 500 M, < 1 B 78.4% 21.6% 91 25 116

<500 M 79.6% 20.4% 179 46 225

Assets Withheld 54.5% 45.5% 303 253 556

Does compliance vary with type of primary strategy? Maybe

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Firm GIPSCompliance


GIPS Complian

t

Non-Complian

t

GIPS Complian

t

Non-Complian

tTotal

Equity Only 68.5% 31.5% 631 290 921

Fixed Income Only 70.3% 29.7% 123 52 175

Multi-Asset Only 100.0% 0.0% 16 0 16

Multi Coverage 79.1% 20.9% 420 111 531

How does compliance map with country-level sponsorship of GIPS?

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Firm GIPSCompliance

GIPS Country Sponsor


GIPS Compliant Non-Compliant

GIPS Compliant

Non-Compliant Total

All Countries N/A 72.4% 27.6% 1190 453 1643Australia Yes 46.5% 53.5% 20 23 43Austria Yes 100.0% 0.0% 2 0 2Belgium Yes 100.0% 0.0% 1 0 1Brazil No 25.0% 75.0% 1 3 4Canada Yes 55.4% 44.6% 62 50 112China No 0.0% 100.0% 0 1 1Denmark Yes 62.5% 37.5% 5 3 8France Yes 56.3% 43.8% 9 7 16Germany Yes 46.7% 53.3% 7 8 15Hong Kong Yes 42.9% 57.1% 3 4 7India No 0.0% 100.0% 0 4 4Ireland Yes 75.0% 25.0% 3 1 4Italy Yes 50.0% 50.0% 1 1 2Japan Yes 75.0% 25.0% 6 2 8Malaysia No 100.0% 0.0% 1 0 1Netherlands Yes 50.0% 50.0% 3 3 6New Zealand Yes 0.0% 100.0% 0 3 3Norway Yes 50.0% 50.0% 1 1 2Russia Yes 0.0% 100.0% 0 1 1Singapore Yes 41.7% 58.3% 5 7 12South Africa Yes 66.7% 33.3% 22 11 33South Korea Yes 100.0% 0.0% 4 0 4Spain Yes 0.0% 100.0% 0 1 1Sweden Yes 0.0% 100.0% 0 1 1Switzerland Yes 52.6% 47.4% 10 9 19United Kingdom Yes 50.0% 50.0% 58 58 116United States Yes 79.4% 20.6% 966 250 1216Vietnam No 0.0% 100.0% 0 1 1

*No GIPS data for certain country sponsors; Greece, Hungary, Kazakhstan, Liechtenstein, Luxembourg, Mexico, Micronesia, Pakistan, Peru, Philippines, Portugal, Sri Lanka, Thailand, Ukraine. Source: eVestment database 12/2013.

Poll 3: Do you believe consultants exclude managers who do not comply with GIPS?

A. YesB. No

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What else are consultants looking for? Top 10 consultant & plan sponsor search terms 2013

Data Point Categories

Data Points

1 Product Asset Info

2 Product Profile Info

3 Firm Asset Info

4 Product Performance

5 Product Equity Characteristics

6 ProductFixed Income Characteristics

7 Product Vehicle Info

8 Firm Ownership Info

9 Product Risk Measures

10 Product Team Description

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And, more broadly, what strategies are active? Top 10 primary universes searched for all regions

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And – what types of strategies are growing in numbers? New products added to eVestment in last 12 months

Strategy Type New Products Added

Hedge Funds 321

US Equity 162

International Equity 160

Global Equity 121

US Fixed Income 104

Emerging Markets Equity 69

Global Fixed Income 67

Global Balanced 51

Alternatives 46

International Fixed Income 34

US Balanced 33

Total 1168

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The Importance of DatabasesHow Important?

• Most institutional investors use consultants• 81% of public plans• 71% of endowments• 54% of Taft-Hartley plans• 38% of corporate plans• 26% of foundations

• Over 94% of our consultant clients use our database for screening

• 75% of managers never or rarely review the data

Which Databases?

• More than 60 globally• Traditional Strategies in

eVestment:• 32.000+

• Alternative strategies in eVestment:• 23,000+

• 1.2 million annual profile views• 100,000 monthly profile views• Nearly 1,000 allocator clients

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Most Important Consultant/Third-Party Database 2013

Source: Cerulli Associates Managing RFPs and Database Teams Best Practices for People, Process, and Technology, page 88

Analyst Note: Cerulli asked survey participants to rank the five most important investment consultant or third-partydatabases that they maintain. The chart scores each database based on the number of times they were listed

and a weighted average of their ranking.16

Database Trends

• AUM – more granular breakdowns

• Holdings – collection of holdings data

• Multiple track records and currencies – databases more global

• Investment Professionals – tracking turnover and tenure over careers

• Comprehension – increased questions and fields being added

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Database Best Practices

• Strategic Database Selection• Managers need to develop a database strategy in order

to optimize exposure and reach their target markets.

• Be Conscious of Deadlines• Although most databases are live, some clients only

receive one data release per quarter.

• Contact Consultants & Analysts• Building relationships can increase your chance of being

in a search.

• Quality Assurance Team• Follow a disciplined QA team and process.

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GIPS Verification

First granted compliance

Is firm GIPS verified

First granted compliance

Is firm GIPS verified. If, yes

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GIPS Verification

May not be compliant if it includes income from securities lending activity

Should be 100% or less

Cannot be compliant

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Summary

• GIPS Compliance is Important to the Institutional Community

• While not a regulated requirement, it is effectively an industry requirement

• Upward trends in alternative asset classes and emerging markets

• Database Population is Evermore Important• Consistent, accurate and timely information reaching

investment consultants• Seek databases that are most appropriate for you to

reach your target market

©The Spaulding Group, Inc. 21

Incorporating GIPSInto Sales & Marketing

David Spaulding, CIPM


Now that you’re compliant …

What next?


Why do firms comply with GIPS?

The primary reason has always been marketing

Many markets (e.g., US institutional) virtually mandate compliance in order to be considered


Gaining a marketing advantage

At one time, firms could claim a “marketing advantage” by complying; however, today it’s typically a “marketing disadvantage” not to comply (except for markets that don’t yet mandate compliance)

And so, if everyone’s claiming compliance, how can you gain an advantage?

By ensuring you fully embrace compliance and take advantage of all opportunities


MarketingPoll 4: Is marketing the most important reason for you claiming compliance?

A. YesB. No


While this isn’t intended to be a “Marketing 101” class …

Businesses, all businesses, must be able to differentiate themselves from their competitors

What the firm’s “unique selling proposition” is must be clearly articulated

What is it that differentiates your firm from others?

Make sure this is clearly identified and reflected in your materials, including your GIPS materials


It also isn’t a GIPS class

As that would take a full day (though we offer them)

This session is focused solely on the sales and marketing aspects of GIPS


Get involved early …

The sales and marketing team(s) should play an active role in the firm’s compliance

The participation should be from the start of the process, and continue onward, as GIPS will be an important part of the firm’s marketing efforts


Understand the Standards Anyone dealing with clients or prospects

needs to have a sufficient degree of familiarity with the Standards

This can help ensure that questions are answered correctly and that the right information is provided

Plus, that you make every reasonable effort to provide all prospects with a compliant presentation


As an aside … A Q&A was published this past May in the

GIPS® database that asked whether a verifier must test that a firm is meeting the requirement to make every reasonable effort to provide all prospective clients with a compliant presentation (¶ I.0.A.9).

The GIPS Helpdesk responded that verifiers must determine that a firm has established appropriate policies and procedures for this, and test the firm’s procedures.


Providing prospects with presentations

While most of our GIPS verification clients have created logs to track prospects that received a presentation, they must also ensure that policies and procedures are in place to ensure there is a reasonable effort made to provide a prospect with a presentation.


Providing prospects with presentations

A definition of how the firm defines a “prospect” should be included here as well. The CFA Institute has created “Best Practices for Creating and Maintaining GIPS Policies and Procedures.” Pages 20-22 provide guidance on this topic.

If you have not already done so, you need to create and/or modify your policy accordingly.


What we find …

A new term: “interested party.” As distinguished from a “prospective

client.”


Getting from being an Interested Party to a Prospect

You need wording to explain when or how an interested party becomes a prospective client.

We see the introduction of the term “interested party,” which is a status before becoming a “prospective client.”

Perhaps if you define these terms; something like:


Getting from being an Interested Party to a Prospect

An “interested party” is someone who has indicated interest in learning about your products and services.

A “prospective client” is someone who has explained interest in one or more of your products and provided you with enough information to qualify them as being able to invest with you.

An “interested party” becomes a “prospective client” once you have been able to identify one or more products that the interested party is a candidate for and have been able to determine that they are qualified to invest with you.


GIPS composite construction

Sales and marketing should play a role in the GIPS composite decisions

What strategies do you require materials for?

Should variations on these strategies be turned into composites, too?


Poll 5: GIPS Compliant Presentations

Do you have GIPS compliant presentations for ALL composites?

Yes No


Discretionary or Non-discretionary?

Clients who impose restrictions or require-ments that cause their account to not be truly representative of the composite’s strategy can be declared “non-discretionary” for GIPS purposes

But before rushing to do this, consider:Might other prospects

want similar restrictions?©The Spaulding Group, Inc.

www.SpauldingGrp.com 39

Leveraging restrictions

Rather than make “no sin stocks” accounts non-discretionary, why not create a version of your strategy(ies) that have this restriction? U.S. Large Cap Growth (with sin) U.S. Large Cap Growth (without sin)


GIPS materialsWe generally recommend that firms follow the templates provided in the Standards

41©The Spaulding Group, Inc.

www.SpauldingGrp.com

GIPS materials

But you don’t have to be limited, as you can

Incorporate recommended information (e.g., composite average returns)

Include supplemental information Include graphs and charts Show monthly and/or quarterly returns

during the current year (not for every year)


What do you do if you have a new strategy with no history?

Not a problem! You can still create a GIPS presentation, with

all of the required disclosures (footnotes), but just no returns

In addition, you can include, as supplemental information, hypothetical, model, or back-tested results if you feel this will be helpful

Just make you provide adequate disclosures!


Poll 6: Claim of Compliance Online?

Do you have your claim of compliance with GIPS on your firm’s website? Yes No



Leverage compliance

By posting that you’re compliant on your firm’s websiteRemember: the “GIPS Advertising Guidelines” must be adhered to

Make people aware that you comply and that you’ve been verified!


Should you post your full compliant materials online?

Advantage: you make it easier for everyone to see your performance history

Disadvantage: you don’t have any knowledge of who has looked

By requiring individuals to contact you, you are able to capture details, which can prove valuableWe recommend you direct individuals to someone to capture the prospect’s details


Poll 7: GIPS compliant materials online?

Do you have your complete GIPS presentations on your firm’s website? Yes No


Track who gets your materials

Keep track of who (and when) gets your GIPS materials

This way, if you identify any material errors,* you can ensure that you provide (a) those who became clients as well as (b) those who are still active prospects with corrected materials (along with an appropriate disclosure)

* Not required to provide disclosure of errors to new prospects


Advertising

GIPS has “advertising guidelines” which must be followed if you reference “GIPS” in your advertisement

We’ve often found errors in advertisements (e.g., ones that appear in P&I), so make sure you review them vis-à-vis these guidelines

We can review advertisements for our verification clients: just ask!


What if a market you serve doesn’t care about GIPS?

Educate them! Explain

That you’ve chosen to comply with a globally recognized set of ethical principles

That you chose to invest both time and resources into compliance because you believe it’s to the best interest of your clients and prospects

That your firm always tries to follow “best practice,” and for such reporting, GIPS is “best practice.”


Get the “ok” from legal/compliance

Ensure that your policies include a review of all GIPS/performance-related marketing materials by compliance/legal


Poll 8: Policies and Procedures

Do your policies and procedures describe how you make every reasonable effort to provide prospective clients with your GIPS materials?

Yes No


Education is important

All involved with any aspect of GIPS must be sufficiently knowledgeable about the Standards to ensure they don’t put the firm at risk

This includes Compliance Sales & Marketing folks Portfolio management


Questions?John Molesphini

eVestment(866-408-3273)

[email protected]

David Spaulding, CIPMThe Spaulding Group, Inc.

(732-873-5700)[email protected]



APPENDIX

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Number of Databases Maintained

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Source: Cerulli Associates “Managing Database and RFP teams” report 11/2013

“The five most important consultant or other third-party databases that managers populate vary some, but are often the same. Many managers ranked Mercer, Callan, and Wilshire as one of the top-five databases for which they maintain data, and eVestment ranked at the top of the list of every manager.” Cerulli

“Public pension funds' hunt for money managers is moving toward a streamlined search process and away from the traditional RFP, a shift driven by investment consultants.”

Source: P&I 11/2012

The Importance of Databases

• A marketing channel in disguise?• Investments in CRM systems• Expenditures in Web sites• Creation of one-pagers and pitch books

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Does compliance vary with size of firm? (version A)

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Make the most out of your claim of GIPS compliance - Incorporating the Global Invesment Performance...

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