The investment management industry has spent significant time grappling with the SEC’s Marketing Rule and the question of whether gross-of-fee returns can be presented without corresponding net-of-fee returns in certain cases. Many firms have invested resources in trying to allocate fees to individual securities and sectors in an effort to comply. However, the SEC has now issued two FAQs (March 19, 2025) that provide much appreciated clarity on extracted performance and portfolio characteristics. The key takeaway? It is possible to present gross-of-fee returns without net-of-fee returns—if certain conditions are met.
Investment advisers often present the performance of a single investment or a subset of a portfolio (“extracted performance”) in marketing materials. Historically, the SEC required both gross and net performance to be shown for such extracts. The new guidance provides a pathway for firms to display only gross-of-fee extracted performance, provided the following conditions are met:
If these conditions are satisfied, the SEC staff has indicated they will not recommend enforcement action, even if the extracted performance is presented without corresponding net returns. This is a notable shift, as it allows firms to avoid the complex and often impractical task of allocating fees at the investment or sector level.
Another common industry question has been whether certain portfolio or investment characteristics—such as yield, volatility, Sharpe ratio, sector returns, or attribution analysis—constitute “performance” under the marketing rule, and if so, whether they must be presented net of fees.
The SEC’s latest guidance acknowledges that calculating these characteristics net of fees can be difficult and, in some cases, may lead to misleading results. As a result, the staff has confirmed that firms may present gross characteristics alone, without net characteristics, if they meet the following criteria:
As with extracted performance, these conditions help ensure that the presentation is not misleading, reducing the risk of enforcement action.
This updated SEC guidance provides much-needed flexibility for investment managers, allowing for the presentation of gross-of-fee returns in a compliant manner. Firms that clearly disclose their approach and follow the specified conditions can reduce compliance burdens while still meeting investor protection standards. While this does not eliminate all complexities of the Marketing Rule, it does offer a practical solution that allows for more straightforward and meaningful performance reporting.
For firms navigating these changes, ensuring clear disclosures and maintaining compliance with the general prohibitions of the rule remains critical. Those who align their advertising materials with these guidelines can now confidently use gross-of-fee performance in a way that is both transparent and in compliance with regulatory requirements.
If you have questions about calculating or presenting investment performance in a manner that complies with regulatory requirements or industry best practices, we would love to talk to you. Please feel free to email us at hello@longspeakadvisory.com.
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The Global Investment Performance Standards (GIPS®) have released a new Guidance Statement for OCIO Portfolios, bringing greater transparency and consistency to the way Outsourced Chief Investment Officers (OCIOs) report performance. This update is a significant milestone for firms managing OCIO Portfolios and asset owners looking to evaluate their OCIO providers.
An Outsourced Chief Investment Officer (OCIO) is a third-party fiduciary that provides both strategic investment advice and investment management services to institutional investors such as pension funds, endowments, and foundations. Instead of building an in-house investment team, asset owners delegate investment decisions to an OCIO, which handles everything from strategic planning to portfolio management.
The Guidance Statement for OCIO Portfolios applies when a firm provides both:
This ensures that firms managing OCIO Portfolios follow standardized performance reporting, making it easier for prospective clients to compare OCIO providers.
The guidance does not apply in the following scenarios:
Previously, OCIO firms had flexibility in defining their performance composites. Now, the GIPS Standards introduce Required OCIO Composites, which categorize portfolios based on strategic asset allocation.
Firms must classify OCIO Portfolios based on their strategic allocation, not short-term tactical shifts. This standardization enhances comparability across OCIO providers. The specific allocation ranges for the required composites are as follows:
To ensure transparency, firms must follow specific rules for return calculations and fee disclosures:
The new guidance also requires OCIO firms to disclose additional portfolio details, such as:
By providing these details, OCIO firms enable prospective clients to make better-informed decisions when selecting an investment partner.
The Guidance Statement for OCIO Portfolios is effective December 31, 2025. From this date forward, GIPS Reports for Required OCIO Composites must follow the new standards. However, firms are encouraged to adopt the guidance earlier to improve transparency and reporting consistency.
With OCIO services growing in popularity, this new guidance ensures that firms adhere to best practices in performance reporting. By establishing clear rules for composite classification, return calculation, and fee disclosure, the guidance empowers asset owners to compare OCIO providers with confidence.
As the December 31, 2025 deadline approaches, OCIO firms should begin aligning their reporting practices with this new guidance to stay ahead of the curve.
Don’t miss CFA Institute’s webinar scheduled for this Thursday February 6, 2025 to hear more on this guidance statement.
If you have questions about the Guidance Statement for OCIO Portfolios or the Standards in general, we would love to talk to you. Longs Peak’s professionals have extensive experience helping firms become GIPS compliant as well as helping firms maintain their compliance with the GIPS Standards on an ongoing basis. Please feel free to email us at hello@longspeakadvisory.com.
Achieving compliance with the Global Investment Performance Standards (GIPS®) is a powerful way to demonstrate commitment to transparency and best practices in investment performance reporting. But is it always easy? Recently, we’ve heard several institutions, particularly in regions with limited compliance, express concerns that adhering to the standards would be challenging due to conflicting local laws and regulations.
Although local regulations can sometimes differ from the GIPS standards, we have found that direct conflicts with the GIPS standards tend to be rare. The GIPS standards were designed with a global framework in mind, enabling prioritization of stricter local laws and management of potential conflicts transparently.
To achieve GIPS compliance while adhering to local regulations, firms and asset owners must understand how the GIPS standards prioritizes regulatory alignment. The guidance stresses adherence to the stricter of the two standards:
Again, direct conflicts tend to be rare. Most often we see situations where the GIPS standards may be stricter than the local law or vise versa. We have provided some examples in the sections that follow to help demonstrate how you might handle either situation.
Key principle: GIPS compliance can be maintained while respecting local regulations. When differences or conflicts occur, firms can continue to claim GIPS compliance by carefully disclosing deviations required by local regulations. This ensures transparency and maintains the integrity of performance reporting.
The first step for institutions is to identify any inconsistencies between the GIPS standards and their local regulatory requirements. If local laws prevent compliance with certain provisions of the GIPS standards, firms should:
Direct conflicts with the GIPS standards must be disclosed transparently in GIPS reports to ensure stakeholders understand the nature and impact of modifications made to meet local requirements. This commitment to openness preserves the credibility of the firm’s compliance efforts.
A relevant example where a local law is more strict includes the SEC’s marketing rule for firms registered in the United States. The SEC requires net-of-fee performance reporting, which is stricter than the GIPS standards allowance for either gross-of-fee or net-of-fee returns. For firms registered with the SEC, this means including net-of-fee returns in GIPS reports. Although additional disclosure in this case may not be required, it illustrates how firms can remain GIPS compliant by adhering to the GIPS standards and also the stricter local rule.
The GIPS Handbook (see page 256) provides an example of a conflict where the local law prohibits the presentation of returns for periods less than one year to prospective clients. In this scenario, the GIPS standards requires disclosure of the conflict and an explanation for the manner in which the local laws or regulations conflict with the GIPS standards. The following sample disclosure language is provided:
"Local laws do not allow the presentation of returns of less than one year to prospective clients, which is in conflict with the GIPS standards. Therefore, no performance is presented for this composite for the period from 1 July 2018 (the inception date of the composite) through 31 December 2018."
The GIPS standards were developed with the flexibility needed for global adoption, enabling firms worldwide to achieve compliance while respecting local regulatory environments. By following all the requirements of the GIPS standards, identifying conflicts with local laws, and disclosing deviations where necessary, firms can ensure they uphold both local and global standards for performance reporting. This means that even for firms concerned about these conflicts, compliance with the standards is achievable.
If you would like to be among the group of investment firms or asset owners claiming GIPS compliance and upholding the highest standard for investment performance reporting then please consider the following actions:
Achieving GIPS compliance is possible, even when local regulations do not perfectly align. With careful planning, transparent disclosure, and a commitment to upholding the highest standards, it is possible to comply with the GIPS standards no matter where you’re located. Reach out to Longs Peak if you would like help getting started.
GIPS® is a registered trademark owned by CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.
