Key Takeaways from the 2023 GIPS® Standards Conference

Sean P. Gilligan
Author
October 23, 2023
15 min
Key Takeaways from the 2023 GIPS® Standards Conference

CFA Institute hosted the 27th annual GIPS Standards Conference on October 17th - 18th 2023 in Chicago, Illinois. As expected, it was filled with a lot of familiar faces, but also had quite a few first timers, which was nice to see.

Being almost a year into the SEC Marketing Rule and with implementation of the Private Fund Adviser Quarterly Statement Rule on the horizon, the hottest topics of this year’s conference were the sessions relating to regulatory compliance. These sessions included discussions with representatives from the U.S. Securities and Exchange Commission (“SEC”) answering practical questions related to adherence to these rules as well as sessions with senior performance professionals discussing the detailed performance methodology required to comply.

Other topics included a review of the proposed guidance statement for applying the GIPS standards to OCIOs, helpful advice for updating consultant databases, a proposed method to risk-adjust performance attribution, and some lessons on soft skills for leaders managing relationships.

SEC Marketing Rule

Michael McGrath, CFA, Partner with Dechert LLP and Robert Shapiro, Assistant Director, Division of Investment Management with the SEC together with Karyn Vincent, CFA, CIPM and Krista Harvey, CFA, CIPM of CFA Institute did an excellent job emphasizing the key lessons learned as we near the 1-year mark of the adoption of the Marketing Rule. Below are some key takeaways worth noting:

Defining “Performance”

Since the Marketing Rule requires investment managers to present performance net-of-fees, it is important for firms to define what they consider “performance.” The SEC takes a straightforward approach, generally considering any statistic that demonstrates how much an investor earned from an investment to be performance. But, even with this simple and easy to understand approach, there can be some grey areas.

Based on the discussions in this session, it seems to now be widely accepted that in addition to basic returns being considered performance that contribution is also considered performance, while attribution and most performance appraisal measures are not considered performance. Performance appraisal measures should be individually considered to confirm if they are demonstrating the amount earned (which would be performance) or if it is used as a measure of the manager’s skill(which would not be considered performance).

Some portfolio characteristics could also be a grey area that firms should be careful to consider before presenting solely as gross-of-fees. For example, yield was discussed at length. It was said that total portfolio yield for something like an enhanced cash portfolio likely would be performance because the yield in that case is essentially the return the investor earned. On the other hand, dividend yield for a growth strategy where this does not directly indicate the amount the investor earned *might* be performance. This really would come down to how it is presented and how material the yield is to the strategy. If material to the strategy’s return, this may be considered performance and, in this case, would need to be reduced by a model fee.

After determining that a statistic is not performance and will be presented based on gross-of-fee input data, it is important to clearly label these figures as gross. A disclosure under the table or chart that simply states something like, “Risk statistics are presented gross-of-fees,” should suffice.

There was also a lot of discussion relating to applying fees to extracted performance such as sector and holdings-level performance. It was made very clear that each segment must be reduced and presented net-of-fees so fees cannot just hit the cash segment or something like that. To achieve this, most firms are using a model fee. For example, if the highest fee for the strategy is 1% per year and quarterly sector returns are presented, each sector’s quarterly return is reduced by 0.25%.

Hypothetical Performance

Hypothetical performance has been a focus of the initial SEC enforcement actions taken against firms under the Marketing Rule. The main issue has been firms broadly distributing hypothetical performance without any policies and procedures in place to ensure the distribution of this type of performance is limited only to those that can be reasonably expected to understand it.

The key is that firms must document policies that clearly define the intended audience for a particular presentation of hypothetical performance and then ensure that the presentation only goes to this audience. In addition, documentation should include the tools necessary to understand the information provided. For example, the type of hypothetical performance should be clearly described as well as any assumptions made to create this performance.

Hypothetical performance is very broadly defined. It could be anything from a back-tested model to a paper portfolio or even just an aggregation of extracted returns (e.g., a composite of carveouts). It should be clear what the performance represents and consideration should be given to the complexity of the information, especially when determining it’s appropriate audience.

Private Fund Adviser Quarterly Statement Rule

Anne Anquillare, CFA, Head of US Fund Services with CSC Global Financial Markets and Pamela Grossetti, Partner with K&L Gates together with Krista Harvey, CFA, CIPM of CFA Institute walked us through the key elements to prepare for with the new Private Fund Adviser Quarterly Statement Rule. Below are some key takeaways worth noting:

The Compliance Date for the Quarterly Statement Rule is March 14, 2025. This may sound like a long time away, but it is important to keep in mind that the requirement to include cross-references to the underlying governing documents in the Quarterly Statement may require amendments to such documents before the first Quarterly Statement is issued, and this could be time consuming.

Under this new rule, private fund managers must distribute a quarterly statement to the investors in the fund within 45 days after each quarter ends and 90 days after year-end. This is required for any private fund that has at least two full quarters of operating results.

There are many items that must be included in the quarterly statements relating to general fund details like fees and expenses as well as disclosures that are cross-referenced to the private fund’s offering documents; however, being the GIPS conference, this presentation was primarily focused on the performance requirements.

The performance requirements for liquid funds are very different for illiquid funds. An illiquid fund is one that is not required to redeem interests when requested by an investor and has limited opportunities for an investor to withdraw funds prior to the fund’s termination. If a fund manager determines that their fund is liquid, the performance requirement for the quarterly statement is limited to showing the following three items, each in equal prominence:

  1. Annual net-of-fee returns for each of the past 10 fiscal years (or back to inception if shorter)
  2. Annualized net-of-fee returns for the past 1, 5, and 10 years through the end of the latest fiscal year (or since inception if shorter)
  3. Year-to-date net-of-fee return for the current fiscal year

Illiquid funds have a much more significant requirement with 12 figures they are required to present:

Portfolio-Level

Investment-Level

Unlike the GIPS standards, under this rule, there is no exemption for funds that only use a subscription line of credit for a short period of time. Funds that utilize a subscription line of credit for any period are required to show the metrics listed above both with and without the subscription line.

Another notable difference from the GIPS standards is that this rule requires interest expense charged from the subscription line of credit to be added back when calculating the “without subscription line of credit” version of the required metrics. The GIPS standards do not require this adjustment.

It was also discussed that if these quarterly statements were provided to prospective investors instead of only current investors then they would also need to be reviewed to confirm that they meet the Marketing Rule on top pf the Quarterly Statement Rule.

Current State of SEC Exams

Mark Dowdell, Assistant Regional Director with the SEC together with Ken Robinson, CFA, CIPM from CFA Institute discussed current trends in SEC examinations. Below are some key takeaways worth noting:

There was a strong emphasis on the need for clear policies and procedures that have been customized for the firm. Specifically, it was emphasized that policies and procedures relating to hypothetical performance are not the only thing firms should make sure they add for the Marketing Rule. For example, if firms are presenting predecessor performance or extracted performance there should be documented policies for this as well.

It was mentioned that in addition to standard examinations, the SEC is also conducting some risk-based exams that may be limited in scope, but go very deep on a narrow area. This may even include the recalculation of performance in their own systems to get comfortable with the accuracy of presented figures.

Outside of the recent enforcement actions relating to hypothetical performance, the SEC continues to see firms make exaggerated or untrue statements relating to the number of staff they employ, the qualifications of staff, awards received, the use of AI in the investment process, and their adherence to ESG standards in the investment process. While it is okay to state opinions in marketing materials, statements of fact absolutely must be substantiated.

Developing a Database Strategy

Jill Banaszak, Global Head of Omni Success at eVestment lead a great session on getting the most out of 3rd party and consultant databases.

The most important takeaway was the importance of using databases to tell the story of your firm in a complete and accurate way. Often firms leave a number of fields blank or neglect to revisit (or update) the narrative sections to remain accurate and in sync with their other messaging online or in marketing materials. Asset owners and their representatives use the databases to make short lists of firms meeting their criteria and many firms end up excluded as a result of blank fields or inconsistencies in messaging. At a minimum, firms should target completing at least 80% of the requested information.

It is also important to ensure information is completed timely and accurately. Firms should have monthly figures updated by the 12th business day of the month at the latest to avoid missing out on searches. To avoid errors or incomplete information, firms should consider who is tasked with updating the information and also ensure this person or team is qualified and has access to all relevant information so it can be fully completed. Implementing a quality control process to double check the information is also important to avoid typos or other mistakes in the information presented.

Applying the GIPS Standards to OCIOs

There is currently an exposure draft of the Guidance Statement for OCIO Strategies out for public comment with comments due by 20 November 2023. This session was led by a group of panelists who were part of the OCIO working group that created this new guidance statement. The purpose of this guidance statement is to improve comparability between OCIO strategies. The primary change in this proposed guidance that deviates from the current requirements of the GIPS standards for firms is the required composite structure that all OCIO managers would need to follow.

The required composite structure would separate liability-focused composites from total return objective composites and would then further break the composites down by their allocation between risk mitigating assets and growth assets ranging from conservative to aggressive allocations. There are specific weightings defined for each that are intended to line up with commonly used OCIO benchmarks.

These new composites are only required to build out five years of history, but like other composites firms manage, must then build up to showing a ten year track record before any performance periods can be removed.

This guidance statement also proposes requiring both gross-of-fee returns and net-of-fee returns instead of only one because of the complexity of OCIO fees.

This guidance statement has not yet been officially adopted, but once approved, it is expected to allow for a 12-month implementation period for firms to update their policies and procedures, construct composites that align with the prescribed composite structure, and create GIPS reports for these new composites.

Conclusion

This year’s speakers did a great job providing clarification on the SEC Marketing Rule and other relevant topics that impact GIPS compliance and investment performance.

We were happy to see many old friends in person this year in Chicago and look forward to seeing everyone again next year in San Diego. It was announced that next year’s conference will be held on the 17th – 18th of September in San Diego, California!

If you have any questions about the 2023 GIPS Standards Conference topics or GIPS compliance and performance measurement in general, please contact us.

*A previous version of this article included a mistake for investment-level figures for illiquid funds. This has been corrected.

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ColoradoBiz Names Longs Peak’s Jocelyn Gilligan, CFA, CIPM as a GenZYZ Top Young Professional
Longs Peak is pleased to announce that Partner and Co-Founder, Jocelyn Gilligan has been named a GenXYZ Top Young Professional by ColoradoBiz Magazine. As ColoradoBiz states, “They’re uncommon achievers, whether as entrepreneurs, CEOs, nonprofit leaders, visionaries critical to their companies’ success or, in some cases, all of those roles. This year’s Top 25 Young Professionals figure to continue making a difference professionally and in their communities for years to come.”
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Longs Peak is pleased to announce that Partner and Co-Founder, Jocelyn Gilligan has been named a GenXYZ Top Young Professional by ColoradoBiz Magazine.

As ColoradoBiz states, “They’re uncommon achievers, whether as entrepreneurs, CEOs, nonprofit leaders, visionaries critical to their companies’ success or, in some cases, all of those roles. This year’s Top 25 Young Professionals figure to continue making a difference professionally and in their communities for years to come.”

Jocelyn grew up in Boulder, CO and graduated from the University of Colorado. She started her career at Ernst & Young in New York City where she worked on their Financial Services Transfer Pricing Team. She transferred with EY to their office in Shanghai and then eventually to Hong Kong. Jocelyn left EY as a Manager and relocated back to Colorado where she and her husband started a family. Soon thereafter, Jocelyn and Sean founded Longs Peak out of a small one-car garage in their home in Longmont, CO. Now running a thriving team of 14, Jocelyn has weathered the ups and downs of entrepreneurship. She credits a lot of their success to their amazing team and the community of entrepreneurs they live near and network with (Longs Peak is an active member of EO (Entrepreneurs Organization)).

Jocelyn is a voting member of the PTO at her children’s school and a member of Women in Investment Performance Measurement, a group recently founded to support women in the investment performance industry.

Please join us in celebrating this year’s ColoradoBiz Top Young Professionals nominees. You can view the complete list of nominees here

About ColoradoBiz’s Top 25 Young Professionals

The 13th annual Gen XYZ awards is open to those under 40 who live and work in Colorado — numbered in the hundreds, making for difficult decisions and conversations among judges, as always. Applications were judged by our editorial board based on career achievement, community engagement and their stories of how they got to where they are now.

About Longs Peak

Longs Peak is a purpose and values-driven company. It is our mission to make investment performance information more transparent and reliable—empowering investors to make better, more informed investment decisions.

At the onset, we were looking to help smaller investment managers by giving them access to professional performance experts and tools typically only available to very large firms. We know that our work enables emerging managers to compete with the big guys and helps facilitate their growth. We strive to be our clients’ most valued outsource partner and to be known for our exceptional client service. We know that providing exceptional client service means that we must first create a culture that lives by the ideals we are trying to create for our clients. A place where incredibly talented individuals are empowered to put their best work into the hands of clients that truly value what we do. As a firm, we recognize that our greatest asset is people – both those we work with and those we work for. We continue to evolve into something that represents the needs of both of these groups and hope someday a GIPS Report is provided to every prospective investor in the world.

SEC Clarifies Marketing Rule: Gross-of-Fee Returns Allowed Under Certain Conditions
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.
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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.

Extracted Performance: Gross Returns Can Stand Alone Under Specific Criteria

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:

  1. The extracted performance must be clearly identified as gross performance.
  2. The advertisement must also present the total portfolio’s gross and net performance in a manner consistent with SEC requirements.
  3. The total portfolio’s performance must be given at least equal prominence to, and facilitate comparison with, the extracted performance.
  4. The total portfolio’s performance must be calculated over a period that includes the entire period of the extracted performance.

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.

Portfolio and Investment Characteristics: Net-of-Fee Not Always Required

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:

  1. The characteristic must be clearly identified as calculated without the deduction of fees and expenses.
  2. The advertisement must also present the total portfolio’s gross and net performance in a manner consistent with SEC requirements.
  3. The total portfolio’s performance must be given at least equal prominence to, and facilitate comparison with, the gross characteristic.
  4. The total portfolio’s performance must be calculated over a period that includes the entire period of the characteristic being presented.

As with extracted performance, these conditions help ensure that the presentation is not misleading, reducing the risk of enforcement action.

Bottom Line: A Practical Path Forward

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.

Questions?

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.

New GIPS Standards Guidance for OCIOs: What You Need to Know
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.
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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.

What is an OCIO?

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.

Who Does the New Guidance Apply To?

The Guidance Statement for OCIO Portfolios applies when a firm provides both:

  1. Strategic investment advice, including developing or assessing an asset owner’s strategic asset allocation and investment policy statement.
  2. Investment management services, such as portfolio construction, fund and manager selection, and ongoing management.

This ensures that firms managing OCIO Portfolios follow standardized performance reporting, making it easier for prospective clients to compare OCIO providers.

Who is Exempt from the OCIO Guidance?

The guidance does not apply in the following scenarios:

  • Investment management without strategic advice – If a firm only manages investments without advising on asset allocation or investment policy.
  • Strategic advice without investment management – If a firm provides recommendations but does not manage the portfolio.
  • Partial OCIO portfolios – If a firm only manages a portion of a portfolio, rather than the full OCIO mandate.
  • Retail client portfolios – The guidance is specific to institutional OCIO Portfolios and does not apply to retail investors including larger wealth management portfolios.

Key Change: Required OCIO Composites

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.

Types of Required OCIO Composites

  1. Liability-Focused Composites – Designed for portfolios aiming to meet specific liability streams, such as corporate pensions.
  2. Total Return Composites – Focused on capital appreciation, commonly used by endowments and foundations.

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:

Required OCIO Composites for OCIO Portfolios

Required OCIO Composites
Source: Guidance Statement for OCIO Portfolios

Performance Calculation & Reporting

To ensure transparency, firms must follow specific rules for return calculations and fee disclosures:

  • Time-weighted returns (TWR) are required, even for portfolios with private equity or real estate holdings.
  • Both gross and net-of-fee returns must be presented to clarify the true cost of OCIO management.
  • Fee schedule disclosures must include all investment management fees, including fees from proprietary funds and third-party placements.

Enhanced Transparency in GIPS Reports

The new guidance also requires OCIO firms to disclose additional portfolio details, such as:

  • Annual asset allocation breakdowns (e.g., growth vs. liability-hedging assets).
  • Private market investment and hedge fund exposures.
  • Portfolio characteristics, such as funding ratios and duration for liability-focused portfolios.

By providing these details, OCIO firms enable prospective clients to make better-informed decisions when selecting an investment partner.

When Do These Changes Take Effect?

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.

Why This Matters

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.

Questions?

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.