Asset Owners: Creating Meaningful Asset Class Benchmarks That Align with Your IPS
Sean P. Gilligan, CFA, CPA, CIPM
Managing Partner
July 9, 2025
15 min
When you're responsible for overseeing the performance of an endowment or public pension fund, one of the most critical tools at your disposal is the benchmark. But not just any benchmark—a meaningful one, designed with intention and aligned with your Investment Policy Statement(IPS). Benchmarks aren’t just numbers to report alongside returns; they represent the performance your total fund should have delivered if your strategic targets were passively implemented.
And yet, many asset owners still find themselves working with benchmarks that don’t quite match their objectives—either too generic, too simplified, or misaligned with how the total fund is structured. Let’s walkthrough how to build more effective benchmarks that reflect your IPS and support better performance oversight.
Start with the Policy: Your IPS Should Guide Benchmark Construction
Your IPS is more than a governance document—it is the road map that sets strategic asset allocation targets for the fund. Whether you're allocating 50% to public equity or 15% to private equity, each target signals an intentional risk/return decision. Your benchmark should be built to evaluate how well each segment of the total fund performed.
The key is to assign a benchmark to each asset class and sub-asset class listed in your IPS. This allows for layered performance analysis—at the individual sub-asset class level (such as large cap public equity), at the broader asset class level (like total public equity), and ultimately rolled up at the Total Fund level. When benchmarks reflect the same weights and structure as the strategic targets in your IPS, you can assess how tactical shifts in weights and active management within each segment are adding or detracting value.
Use Trusted Public Indexes for Liquid Assets
For traditional, liquid assets—like public equities and fixed income—benchmarking is straightforward. Widely recognized indexes like the S&P 500, MSCI ACWI, or Bloomberg U.S. Aggregate Bond Index are generally appropriate and provide a reasonable passive alternative against which to measure active strategies managed using a similar pool of investments as the index.
These benchmarks are also calculated using time-weighted returns (TWR), which strip out the impact of cash flows—ideal for evaluating manager skill. When each component of your total fund has a TWR-based benchmark, they can all be rolled up into a total fund benchmark with consistency and clarity.
Think Beyond the Index for Private Markets
Where benchmarking gets tricky is in illiquid or asset classes like private equity, real estate, or private credit. These don’t have public market indexes since they are private market investments, so you need a proxy that still supports a fair evaluation.
Some organizations use a peer group as the benchmark, but another approach is to use an annualized public market index plus a premium. For example, you might use the 7-year annualized return of the Russell 2000(lagged by 3 months) plus a 3% premium to account for illiquidity and risk.
Using the 7-year average rather than the current period return removes the public market volatility for the period that may not be as relevant for the private market comparison. The 3-month lag is used if your private asset valuations are updated when received rather than posted back to the valuation date. The purpose of the 3% premium (or whatever you decide is appropriate) is to account for the excess return you expect to receive from private investments above public markets to make the liquidity risk worthwhile.
By building in this hurdle, you create a reasonable, transparent benchmark that enables your board to ask: Is our private markets portfolio delivering enough excess return to justify the added risk and reduced liquidity?
Roll It All Up: Aggregated Benchmarks for Total Fund Oversight
Once you have individual benchmarks for each segment of the total fund, the next step is to aggregate them—using the strategic asset allocation weights from your IPS—to form a custom blended total fund benchmark.
This approach provides several advantages:
- You can evaluate performance at both the micro (asset class) and macro (total fund) level.
- You gain insight into where active management is adding value—and where it isn’t.
- You ensure alignment between your strategic policy decisions and how performance is being measured.
For example, if your IPS targets 50% to public equities split among large-, mid-, and small-cap stocks, you can create a blended equity benchmark that reflects those sub-asset class allocations, and then roll it up into your total fund benchmark. Rebalancing of the blends should match there balancing frequency of the total fund.
What If There's No Market Benchmark?
In some cases, especially for highly customized or opportunistic strategies like hedge funds, there simply may not be a meaningful market index to use as a benchmark. In these cases, it is important to consider what hurdle would indicate success for this segment of the total fund. Examples of what some asset owners use include:
- CPI + Premium – a simple inflation-based hurdle
- Absolute return targets – such as a flat 7% annually
- Total Fund return for the asset class – not helpful for evaluating the performance of this segment, but still useful for aggregation to create the total fund benchmark
While these aren’t perfect, they still serve an important function: they allow performance to be rolled into a total fund benchmark, even if the asset class itself is difficult to benchmark directly.
The Bottom Line: Better Benchmarks, Better Oversight
For public pension boards and endowment committees, benchmarks are essential for effective fiduciary oversight. A well-designed benchmark framework:
- Reflects your strategic intent
- Provides fair, consistent measurement of manager performance
- Supports clear communication with stakeholders
At Longs Peak Advisory Services, we’ve worked with asset owners around the globe to develop custom benchmarking frameworks that align with their policies and support meaningful performance evaluation. If you’re unsure whether your current benchmarks are doing your IPS justice, we’re hereto help you refine them.
Want to dig deeper? Let’s talk about how to tailor a benchmark framework that’s right for your total fund—and your fiduciary responsibilities. Reach out to us today.
Popular Post
Part 2: Creating GIPS Policies and Procedures
June 22, 2017
15 min
Calculation Methodology, Books & Records, Composite Definitions & Rules, and Error Correction Policies
As discussed in Part 1 of this two part series, GIPS compliant firms are required to document how they comply with the GIPS requirements as well as any recommendations that the firm chooses to follow. This document acts as the firm’s internal representation of their GIPS compliance, and is intended to state the firm’s policies and describe the procedures the firm follows to maintain its compliance.
In Part 1 of this two part series we covered Firm Definition and Definition of Discretion. Now, in Part 2 we will cover calculation methodology, books and records, composite definitions and rules, as well as error correction policies.
https://www.youtube.com/watch?v=UhaTy-4c-EM&feature=emb_logo
Calculation Methodology
While GIPS provides a framework for how to calculate performance, firms may have different methods for handling external cash flows, asset-weighting portfolios, calculating dispersion, etc. The specifics of the methods used must be documented in the firm’s GIPS P&P. This section is typically broken down to separately discuss portfolio-level calculation methodology and composite-level calculation methodology.
The main consideration when establishing your firm’s portfolio-level methodology is the treatment of external cash flows. Since the start of 2010, GIPS requires firms to revalue for all “large” cash flows. It is up to your firm to define the term “large,” but it should be defined based on when your firm feels that estimation methods, such as Modified Dietz, lose their accuracy. Most portfolio accounting systems either value portfolios daily (essentially defining “large” as 0%) or value portfolios for all cash flows 10% or greater. Firms without a portfolio accounting system that are calculating their portfolio-level performance more manually (e.g., in Excel) frequently use 20%, but higher than that is less common.
With regard to composite-level performance, the most important information to document is the method used to asset-weight the portfolio returns to get the composite-level performance results. This is typically achieved through one of the following three methods:
- Asset-weight each individual portfolio’s return for the month based on each portfolio’s beginning market value and then sum the portfolios’ weighted returns to get the composite return for the month.
- Asset-weight each individual portfolio’s return for the month based on each portfolio’s beginning market value plus weighted cash flows and then sum the portfolios’ weighted returns to get the composite return for the month.
- Aggregate the underlying data of all portfolios in the composite and then calculate the performance for each month as if all of the aggregated data is for one large portfolio.
This section should also include information regarding how the other required GIPS statistics are calculated, such as dispersion and 3-year annualized ex post standard deviation. Here, it is important to note whether these statistics are calculated based on gross or net-of-fee returns, whether calculated by your portfolio accounting system or outside the system, (e.g., in Excel) and the specific standard deviation formula used to do the calculation (e.g., a population or sample based formula).
Policies Regarding Books and Records
Firms must be able to support all information included in GIPS compliant presentations as well as support that their client assets are real. This section of your GIPS P&P can outline the types of records that are maintained and in what format/location they are stored. Specifically, firms typically outline the types of documents they have (e.g., custodial statements, records maintained within a portfolio accounting system, printed records from a former portfolio accounting system such as holdings reports, transaction summaries, etc.). In this section, it is also important to mention whether files are hardcopy or electronic, whether they are maintained onsite or offsite, and if there is a limit to the amount of time they are saved.
Composite Definitions and Rules
irms must create policies to ensure that portfolios are placed in the appropriate composite for the correct time period. The timing of portfolio movement in or out of composites must be based on objective criteria that is outlined in this section of the firm’s GIPS P&P. For example, firms typically either set a policy based on the amount of time passed since discretion was granted or based on when the portfolio becomes “fully invested” – which must be clearly defined.
For example, if based on time, the policy may be written as, “portfolios are included in the composite at the start of the first full month under management.” If based on when the portfolio becomes fully invested, the policy may be written to state, “portfolios are included in the composite at the start of the first full month after the portfolio is at least 90% invested in line with the strategy.” The percentage set can be whatever your firm feels is appropriate, but you want to establish a clear threshold that can be followed. Simply stating “fully invested” is subjective and difficult to follow consistently.
Other rules can also be documented in this section such as minimum asset levels and significant cash flow thresholds, to keep portfolios out of composites during periods where the intended strategy cannot be fully implemented. Minimum asset levels set for GIPS composite purposes are different than minimums your firm may set for marketing purposes. While your firm can state any marketing minimum you wish based on the size portfolios you hope to attract, the minimum set for composite inclusion must be based on the minimum amount needed to fully implement that strategy. For example, even if your firm states that your strategy has a $1M minimum, portfolios accepted below this threshold must still be included in the composite if they can be managed the same as the portfolios over $1M. In this example, if you determine that below $500k you can no longer diversify the same way as you do for your larger portfolios, then $500k would be an appropriate minimum to set for composite inclusion purposes.
A significant cash flow policy can be established if your firm is concerned with very large cash flows moving in or out of a portfolio. Often these cash flows affect the portfolio’s performance and could distort the composite’s statistics. Firms wishing to implement a significant cash flow policy establish a threshold for the size of a cash flow (typically based on the percentage of the portfolio’s beginning of month market value) that would trigger the temporary removal of the portfolio from the composite while trading takes place to accommodate the cash flow.
This “significant” cash flow threshold is different than the “large” cash flow threshold discussed in the calculation methodology section. While the “large” cash flow threshold is set to improve the mathematical accuracy of the performance calculation, the “significant” cash flow threshold is based on the size of a cash flow that disrupts the actual management of the portfolio. Significant cash flows often lead to distorted performance figures that were out of the portfolio manager’s control in terms of timing or amount.
Error Correction Policies
Firms must create materiality thresholds that pre-determine the action required if errors occur in a compliant presentation. This section should include thresholds for all statistics as well as criteria for determining when errors in disclosures are material. Defining materiality thresholds can be difficult, but CFA Institute, in conjunction with the United States Investment Performance Committee (USIPC), conducted a GIPS error correction survey seeking information regarding the typical materiality thresholds used by GIPS compliant firms. We recommend reviewing the Executive Summary of this survey’s results to get an idea of the thresholds that have been set by your peers.
Typically, thresholds are set that define the level when an error becomes a material error. Anything above the threshold would require the firm to redistribute an amended GIPS compliant presentation to any prospective client or clients that relied on the erroneous presentation. This amended GIPS compliant presentation would also need to include a disclosure that explains the correction. Anything below the materiality threshold will only trigger a correction for future distributions, but no disclosure or redistribution of previously circulated presentations.
Updates for GIPS 2020
The GIPS standards were updated in 2020. Check out our post How to Update Your GIPS P&P for GIPS 2020 to make sure your P&Ps are consistent with these changes.
Want to Learn More?
If you have any questions about the GIPS Standards, we would love to help. Longs Peak’s professionals have extensive experience helping firms become GIPS compliant as well as helping them maintain compliance with the GIPS Standards on an ongoing basis.
GIPS Compliance Actions for the New Year 2020
January 9, 2022
15 min
Your firm works hard to comply with the Global Investment Performance Standards (GIPS®) and likely expects the benefits of GIPS to far outweigh any burden associated with maintaining compliance. Most of the policies and procedures your firm set when first becoming compliant will never need to change; however, as both the standards and your firm evolves, it is beneficial to conduct a high-level review of your GIPS compliance each year. This high-level review will help ensure that you continually refine your processes and policies to maximize the benefits of claiming compliance with GIPS year after year.
This year, conducting a review of your firm’s GIPS compliance is especially important because of the 2020 Edition of the GIPS Standards that was published in mid-2019. For information specific to the 2020 changes, please check out 2020 GIPS Standards: Prepare for the Changes.
Even without the release of a new edition of the standards, each year you should conduct a review. In the review, you should first make sure you have the right people involved. One person or department may be responsible for managing the day-to-day tasks that maintain your GIPS compliance; however, high-level oversight from a larger group should take place to help ensure that any decisions made or policies set will integrate well with your firm’s other strategic initiatives. This larger group, often called a GIPS Committee, typically consists of representatives from compliance, marketing, portfolio management, operations/performance, and senior management.
Not everyone on the committee needs to be an expert in the GIPS standards. In fact, many will not be. What they will need is to be available to share their opinions and represent their department’s interests when establishing or changing key policies for your firm. Your GIPS compliance expert/manager can set the agenda for your meeting and can provide any background on the requirements that will be part of the discussion. If you do not have a GIPS expert internally, or need independent advice about your policies and procedures, a GIPS consultant can be hired to help.
High-Level GIPS Topics to Consider Annually
Once you select the right group to represent each major area of your firm, the following high-level questions can help determine if any action is necessary to improve your GIPS compliance this year:
- Have there been any changes to the GIPS standards?
- Have there been any material changes to your firm or strategies?
- Do your composites meaningfully represent your strategies or should their structure and descriptions be reconsidered?
- Are the materiality thresholds stated in your error correction policy appropriate for the type of strategies you manage and are they consistent with the thresholds set by similar firms?
- Are you satisfied with the service received from your GIPS verifier for the fee that is paid?
- Is there any due diligence you need to conduct on your verification firm?
Changes to the GIPS Standards
It is important to consider whether there have been any changes to the GIPS standards since last year that would require your firm to take action. For example, if a new requirement is adopted, you should consider if any changes to your firm’s policies and procedures or GIPS Reports are needed.
Keep in mind that GIPS compliant firms must comply with all requirements of the GIPS standards including any updates that may be published in the form of Guidance Statements, Questions & Answers (Q&As), or other written interpretations.
If your firm is verified or works with a GIPS consultant, these GIPS experts are likely keeping you informed of any changes to the standards. The best way to check for changes yourself is to visit the “Standards & Guidance” section of www.gipsstandards.org. Specifically, you should check the “GIPS Q&A Database” where you can enter the effective date range of the previous year to see every Q&A published during this period. You should also check the “Guidance Statements” section. The guidance statements are organized by year published, so it is easy to see when new statements are added.
With the new 2020 Edition of the GIPS Standards, a review of the changes to determine how they affect your firm is especially important this year. These changes must be fully adopted before presenting returns in your GIPS reports for periods ending on 31 December 2020 or later.
Changes to Your Firm or Strategies
Similar to changes in the standards, it is important to also consider whether any changes to your firm or its strategies would require you to take action. Examples include, material changes in the way a strategy is managed, a new strategy that was launched, an existing strategy that closed, mergers or acquisitions, or anything else that would be considered a material event for your firm.
Even if no changes were made this year, you should still read your entire policies and procedures document at least annually to make sure it adequately and accurately describes the actual practices followed by your firm. Regulators, such as the Securities and Exchange Commission (SEC), commonly review firms’ policies and procedures to ensure 1) that the document includes actual procedures and is not simply a list of policies and 2) that the stated procedures truly represent the procedures followed by the firm. Many firms have created their policies and procedures document based on template language, so tweaks may be necessary to customize the document for your firm.
Meaningful Composite Structure
The section of your GIPS policies and procedures requiring the most frequent adjustment is your firm’s list of composite descriptions, as you must make changes each time a new composite is added or if a composite closes. However, even without adding new strategies or closing older strategies, the list of composite descriptions should be reviewed at least annually to ensure they are defined in a manner that best represents the strategies as you manage them today.
Since your firm’s prospects will compare your composite results to those of similar firms, it is important that your composites provide a meaningful representation of your strategies and are easily comparable to similar composites managed by your competitors. If a review of your current list of composite descriptions leads you to realize that your strategies are defined too broadly, too narrowly, or in a way that no longer accurately describes the strategy, changes can be made (with disclosure).
Keep in mind that changes should not be made frequently and cannot be made for the purpose of making your performance appear better. Changing your composite structure for the purpose of improving your performance results, as opposed to improving the composite’s representation of your strategy, would be considered “cherry picking.”
Two examples of cases that may require a change in your composites include:
- A strategy has evolved and certain aspects of the way the strategy was managed and defined in the past are different from today. This can be addressed by redefining the composite. Redefining the composite requires you to disclose the date and description of the change. This disclosure will help prospects understand how the strategy was managed for each time period presented and when the shift in strategy took place. Changes like this should be made to your composite descriptions at the time of the change, but an annual review can help you address any items that may have been overlooked when the change occurred.
- A composite is defined broadly to include all large capitalization accounts. Within this large capitalization composite, there are accounts with a growth focus and others with a value focus. If your closest competitors are separately presenting large capitalization growth and large capitalization value composites, your broadly defined large capitalization composite may be difficult for prospects to meaningfully compare to your competitors. To address this, you can create new, more narrowly defined composites to separate the accounts with the growth and value mandates. In this case, the full history will be separated and the composite creation date disclosed for these new composites will be the date you make the change. Note that this will demonstrate to prospective clients that you had the benefit of hindsight when determining the definition.
Materiality Thresholds Stated in Your Error Correction Policy
Another section of your firm’s GIPS policies and procedures that should be reviewed in detail is your error correction policy. Your error correction policy includes thresholds that pre-determine which errors (of those that may occur in your GIPS Reports) are considered material versus those deemed immaterial. These thresholds cannot be changed upon finding an error; however, they can be updated prospectively if you feel a change would improve your policy.
Many firms had a difficult time setting these thresholds when this requirement first went into effect back at the start of 2011. Now that much more information is available to help you determine these thresholds, such as the GIPS Error Correction Survey, you may want to revisit your policy to ensure it is adequate.
Setting and approving materiality thresholds that determine material versus immaterial errors is a task best suited for your firm’s GIPS committee rather than your GIPS department or manager. The reason for this is that opinions of what constitutes a material error will vary from one department to another. Your committee can help find a balance between those with a more conservative approach and those with a more aggressive approach to ensure the thresholds selected are appropriate.
GIPS Verifier Selection and Due Diligence
If your firm is verified, it is important to periodically evaluate whether you are satisfied with the quality of the service received for the fees paid. You may also want to consider whether you need to conduct any periodic due diligence on your verification firm with respect to data security or other concerns important to your firm.
With several mergers, acquisitions, and start-ups in the verification community over the last few years, you may need to do some research to ensure you are familiar with what your options are when selecting a verification firm.
All verifiers have the same general objective: to test and opine on 1) whether your firm has complied with all of the composite construction requirements of the GIPS standards and 2) whether your firm’s GIPS processes and procedures are designed to calculate and present performance in compliance with GIPS. Where they differ is in the fees charged and process followed to complete the verification.
With regard to fees, much of the difference between verifiers is based on their level of brand recognition rather than differences in the quality of their service. For example, smaller firms specialized in GIPS verification may have more experience with the intricacies of GIPS compliance than a global accounting firm; yet, a global accounting firm will likely charge a higher fee. When selecting a higher fee firm, it is important to consider whether the higher fee is offset by the benefit your firm receives when listing their brand name as your verifier in RFPs you complete.
With regard to process, the primary difference between verification firms is whether the verification testing is done onsite or remotely. There are pros and cons to both methods and it is important for your firm to consider which works best for the team that is fielding the verification document requests. The onsite approach may result in finishing the verification in a shorter period, but may be disruptive to your other responsibilities while the verification team is in your office. The remote approach may be less disruptive to your other responsibilities, but likely will take longer to complete and may be less efficient as documents are exchanged back and forth over an extended period of time. Another difference is how the engagement team is structured, whether you can expect to work with the same team each year, and how much experience your main contact has.
Regardless of whether the verification is conducted onsite or remotely, be sure to ask any verifier how your proprietary information and confidential client data is protected. If the work is done remotely, how are sensitive documents transferred between your firm and the verifier (e.g., is it through email or a secure portal) and once received by the verifier, do they have strong controls in place to ensure your data is not breached.
If the work is done onsite, it is important to ask what documents (or copies of documents), if any, the verifier will be taking with them when they leave, and whether these documents are saved in a secure manner. Documents saved locally on a laptop are at higher risk of being compromised.
Questions?
For more information on how to maximize the benefits your firm receives from being GIPS compliant or for other investment performance and GIPS compliance information, contact Sean Gilligan at sean@longspeakadvisory.com.
How to Become GIPS Compliant
May 24, 2017
15 min
Many firms are interested in becoming GIPS compliant, but are intimidated by the initial process of bringing their firm into compliance. As long as you know the steps to become GIPS compliant and understand the options you have to complete each step, this process is very manageable. The information provided here is intended to provide you with a high-level overview of the steps you must complete to become GIPS compliant.
https://www.youtube.com/watch?v=E6zBnbW_OMU&feature=emb_logo
Before holding your firm out to the public as a GIPS compliant firm, there are three main steps that must first be completed. Firms must:
- Document GIPS policies and procedures
- Construct composites that consistently follow these policies and procedures
- Create compliant presentations to show the results of each composite
Document GIPS Policies and Procedures
Firms are required to document how they comply with the GIPS requirements as well as any recommendations that the firm chooses to follow in a document known as the firm’s GIPS Policies and Procedures (“GIPS P&P”). This document acts as the firm’s internal representation of their GIPS compliance, and is intended to state the firm’s GIPS policies as well as describe the procedures the firm follows to maintain their compliance. Examples of items typically found in this document include:
- Firm Definition – GIPS is applied to your firm as a whole, not to a single product or strategy you manage. How your firm is defined for GIPS purposes is primarily based on how the firm is held out to the public, which may differ from the legal structure of your firm.
- Definition of Discretion –Discretion is defined differently for GIPS than it typically is for legal or regulatory purposes. You may have a discretionary contract for an account that you deem to be non-discretionary for GIPS purposes because of restrictions the client places on the implementation of the strategy. The “Definition of Discretion” section of your firm’s GIPS P&P should outline objective criteria for determining the discretionary status of accounts.
- Policies Regarding Books and Records – Firms must be able to support all information included in compliant presentations as well as support that their client assets are real. This section of your P&P can outline the types of records that are maintained and in what format/location they are stored.
- Calculation Methodology – While GIPS provides a framework for how to calculate performance, firms may have different methods for handling external cash flows, asset-weighting accounts, calculating dispersion, etc. The specifics of the methods used must be documented in the firm’s GIPS P&P.
- Composite Definitions and Rules – Firms must create policies to ensure that accounts are placed in the appropriate composite for the correct time period. The timing of the movement of accounts in or out of composites must be based on objective criteria that is outlined in this section of the firm’s GIPS P&P. Other optional rules, such as minimum account sizes and significant cash flow thresholds can also be documented here to keep accounts out of composites during periods where the intended strategy cannot be fully implemented.
- Error Correction Policies – Firms must create materiality thresholds that pre-determine the action required if errors occur in a compliant presentation. This section should include thresholds for all statistics as well as criteria for determining when errors in disclosures are material.
Construct Composites
After the GIPS P&P is created, firms can use these policies to construct the composites defined in the policy document. To do this, firms must:
- Identify all of the accounts that meet the definition of a composite. In other words, group all accounts by strategy, but then remove accounts that do not meet the firm’s definition of discretion or that do not meet a composite-specific rule, such as a minimum account size.
- Determine the correct time to include each account as well as remove any account that closed, changed strategies, or otherwise caused you to lose discretion. Portfolios must only be included in composites for periods in which they were considered discretionary for GIPS purposes. This helps ensure that the composite results accurately represent the firm’s management of the composite’s strategy and does not include outside noise created from client-requested restrictions.
- Asset-weight the monthly account-level results for each account included in the composite to calculate the composite-level performance results.
- Calculate all required composite-level statistics (see the list below) that must be included in the composite’s compliant presentation.
Create Compliant Presentations
Compliant presentations act as the firm’s external representation of their GIPS compliance and must be provided to all prospective clients. Each composite has a separate presentation that includes all of the required statistics as well as the required disclosures. Statistics included in compliant presentations include:
- Annual composite performance (gross and/or net)
- Annual benchmark performance
- Number of accounts in the composite as of each year-end
- Total assets in the composite as of each year-end
- Total assets of the GIPS firm as of each year-end
- A measure of internal dispersion for each annual period
- Three year annualized ex-post standard deviation of both the composite and the benchmark based on monthly returns
Other statistics may also be required such as the percentage of non-fee paying accounts or the percentage of bundled fee paying accounts as of each year-end, where applicable.
Want to Learn More?
If you have any questions about how to become GIPS Compliant, we would love to help. Longs Peak’s professionals have extensive experience helping firms become GIPS compliant as well as helping them maintain compliance with the GIPS Standards on an ongoing basis.
How to Comply with the 2020 GIPS Standards
April 23, 2020
15 min
A new decade is upon us and with the new decade comes a series of new requirements in terms of investment performance reporting for firms and asset owners that elect to claim compliance with the GIPS standards.
Many organizations have elected to adopt the 2020 edition of the GIPS standards early and have already put a solid foundation in place for the updated requirements; however, many organizations have not. The adoption deadline for all compliant organizations is rapidly approaching, so if your organization has not begun this conversion, now is the time to get started.
What is Changing and Why
It has been over a decade since the last edition of the GIPS standards was released, and quite frankly, the industry has changed since 2010. As the industry has evolved, CFA Institute has released a number of Q&A’s, guidance statements, and interpretations on how the changes in the industry impact the standards.
Ten years of updates have resulted in a vast repository of information needed to obtain the guidance required to comply. Having so many different resources for guidance (the 2010 GIPS Handbook, separate guidance statements, the Q&A database, and the GIPS Help Desk) has made managing the requirements of GIPS a pretty daunting task; thus, one of the goals of the 2020 standards is to centralize all of the updates that have come out over the past ten years. The 2020 GIPS standards consolidates many of the concepts previously addressed in guidance statements and Q&A’s, allowing the new provisions and explanation of the provisions to serve as the primary source that firms, asset owners, verifiers, and consultants can look to for guidance.
Additionally, the 2010 standards were heavily focused on composites and the traditional definition of prospective clients. Using this as the main framework is not always applicable to organizations that primarily manage pooled funds or asset owners that do not compete for business or report performance to prospective clients. To address this, CFA Institute set out to make this new edition of the standards more applicable to pooled fund managers and asset owners. These updates were designed to make claiming compliance easier and more relevant for these types of managers, while not creating additional burdens on organizations that are already compliant with GIPS. This goal is evident in the new format of the provisions, which separately focuses on requirements for investment firms, asset owners, and verifiers.
In addition to the separation of pooled funds and composites, the guidance is broader on when organizations may present money-weighted returns instead of time-weighted returns. This change now allows the decision to be based on the investment vehicle structure and who controls the timing and amount of external cash flows, rather than limiting money-weighted returns to certain asset classes. This is a welcomed update in the industry as many organizations were frustrated by requirements to calculate and present time-weighted returns when this type of return was not the most meaningful representation of how they managed their investment strategies.
How the 2020 GIPS Standards are Organized
For ease of use and navigation, the 2020 GIPS standards is broken out into three different groups of tailored provisions – firms, asset owners, and verifiers. Each containing specific requirements and recommendations applicable for that type of organization.
As an organization claiming compliance or working to become compliant for the first time, you will need to determine whether the set of requirements for firms or assets owners is applicable to your claim of compliance. The primary distinguishing factor is whether your organization competes for business and manages external money, or reports to an oversight board and manages internal money. The answer to this determines which set of tailored provisions should be followed and sets the framework for how the standards will apply.
Where to Start – GIPS Compliance Updates
Regardless of whether you are excited for the updates to the standards, they are coming and will be required for all firms and asset owners claiming compliance with GIPS. The new requirements take effect once your GIPS Reports (formerly called Compliant Presentations) present performance information that is inclusive of the period 31 December 2020.
There is a lot of information available and dissecting everything that has been released can be overwhelming. For organizations that have never claimed compliance, the good news is that the new standards are more applicable and easier to adopt than they were previously.
For most organizations currently claiming compliance, what’s great is that the new standards do not require a lot of changes, rather they mostly provide optional procedures that you may choose to adopt if you find it beneficial to do so. However, some firms will require more work.
At Longs Peak, we have created the following questionnaire designed to help you determine if converting to the 2020 GIPS standards will require more than a few minor tweaks. This list does not include all changes, but includes the top ten material changes that may require a project plan to implement the required changes by the effective date of the 2020 GIPS standards.
Answering “Yes” to any of the following questions means your organization may require more than a few quick tweaks to implement the 2020 changes:
GIPS 2020 Checklist
- Does your firm have limited distribution pooled funds (i.e., private funds that are not regulated under a framework that would permit the general public to purchase shares in the fund without a one-on-one presentation)?
- Has your firm created single account composites for pooled funds solely for the purpose of meeting the GIPS requirement of having every discretionary, fee-paying portfolio in at least one composite?
- Does your firm have multi-strategy portfolios (e.g., balanced portfolios where the equity and fixed income segments each could be represented as standalone strategies) where you would like to carve-out the individual strategies into their own composites?
- Does your firm have portfolios where actual transaction costs are unavailable (e.g., wrap accounts or other bundled fee arrangements) and you would like to estimate transaction costs to show gross-of-fee returns without labeling the returns as supplemental information?
- Does your firm have portfolios where your firm controls the amount and timing of external cash flows (other than for private equity or real estate) and you would like to present money-weighted returns rather than time-weighted returns?
- Does your firm have real estate or private equity composites?
- Does your firm include theoretical performance (e.g., model performance) as part of a GIPS report?
- Does your firm follow the Advertising Guidelines to claim compliance with the GIPS standards outside of your GIPS Reports?
- Does your firm currently update your GIPS compliant presentations more than 12 months after the year ends?
- Does your firm have advisory-only assets or uncalled committed capital you wish to present in your GIPS Report?
Although the intent is for the adoption of the standards to be more relevant, many organizations find themselves asking “where do I even begin?” The great news is that you don’t have to figure this all out on your own.
At Longs Peak, we have spent countless hours familiarizing ourselves with the new standards and have helped all of our clients begin to adopt the changes. We know what issues come up and how to navigate the changes required.
As a consultant, we do not have independence requirements like your verifier, so we can actually help you implement many of the 2020 changes required for your organization. If you do not already work with a GIPS consultant, now may be a good time to consider hiring one, especially if you lack the resources needed to get this done by the deadline to convert to the 2020 GIPS standards.
Contact us if you do not wish to read through all of the requirements and recommendations to identify what actions are required for your organization.
Finally, if you would like to read more about what changed and why, we have summarized the main changes to the GIPS standards in GIPS 2020 What’s Changing and What you Should Do.
Recommended Post
If you’ve been around the Global Investment Performance Standards (GIPS®) long enough, you know that governance is one of those topics everyone agrees is important, but far fewer firms can clearly explain what good governance with the GIPS standards actually looks like day to day.
Most firms don’t fail at GIPS compliance because they misunderstand a technical requirement. They struggle because ownership is unclear, decisions are informal, or key knowledge lives in one person’s head. When that person leaves (or when the firm grows) things start to break.
So, let’s simplify this.
Below is a practical, real-world view of what good governance looks like when complying with the GIPS standards—not in theory, not in a policy document that no one reads, but in how well-run firms actually operate.
Start with the Right Mindset: Governance Is About Sustainability
At its core, GIPS compliance exists to answer one question:
Can this firm consistently calculate, maintain, and present performance fairly and accurately—regardless of growth, staff changes, or market stress?
The GIPS standards are built on the principles of fair representation and full disclosure, but governance is what turns those principles into repeatable behavior. Good governance doesn’t mean more paperwork or compliance headaches. It means clear accountability, documented decisions, and controls that actually get used.
1. Clear Ownership (It’s Rarely Just One Person)
One of the most common governance risks we see is a “GIPS compliance department of one” where critical knowledge, decisions, and processes are concentrated with a single individual. While this can work in the short term, it creates challenges around continuity, oversight, and scalability as the firm grows or changes.
Good governance starts by clearly defining:
- Who owns GIPS compliance overall
- Who performs monthly/quarterly/annual tasks
- Who reviews and approves key inputs/outputs
- Who resolves judgment calls
- Who ensures it also complies with other relevant regulations
In practice, this often looks like:
- A GIPS compliance committee or designated governance group
- Representation from performance, compliance, operations, and senior management
- Defined escalation paths for gray areas (e.g., discretion, composite changes, error corrections)
When a firm isn’t large enough to support a formal committee, outsourcing to a GIPS compliance consultant or a provider of managed services can be an effective alternative. These individuals can help you design policies, create procedures, and essentially manage governance for you.
But even if you are big enough, having an independent third party on your GIPS compliance committee can provide an objective, well-informed perspective formed by experience across many firms and a deep understanding of what works well in practice.
2. Policies and Procedures That Reflect Reality
Every GIPS compliant firm has GIPS standards policies and procedures (GIPS standards P&P). Well-governed firms actually use them.
Strong GIPS compliance governance means your GIPS standards P&P:
- Include procedures your firm actually follows instead of only stating policies
- Reflect how performance is really calculated
- Clearly document firm-specific elections and judgments
- Are updated when the business changes (for new products, systems, asset classes)
Think of your GIPS standards P&P as the firm’s operating manual for performance, not a static compliance artifact. If someone new joined your performance team tomorrow, they should be able to follow your policies and procedures to calculate performance and arrive at the same results. If not, governance needs work.
3. Formalized Review and Oversight
Good governance includes independent review, even if it’s internal.
In practice, this often means:
- Secondary review of composite membership decisions
- Review of significant cash flow thresholds and discretion determinations
- Approval of new composites and composite definition changes
- Oversight of error identification and correction
This is where governance protects firms from subtle but costly mistakes, especially those that show up during verification and increase complexity and scope of these engagements. In an ideal situation, these internal reviews should catch issues before they become problems.
As a provider of managed services, Longs Peak helps firms identify performance outliers, accounts that are breaking composite rules, and other data anomalies. This review significantly reduces the risk of erroneous data ending up in your performance and later caught in verification. If you are not able to do this internally, we strongly recommend outsourcing this effort.
4. Governance Extends to Marketing and Distribution
One area that has been increasingly important is the intersection of GIPS compliance, the SEC marketing rule, and how you manage the distribution of marketing materials.
Well-governed firms:
- Control who can distribute GIPS Reports and how they are distributed
- Ensure Marketing understands what is and is not an advertisement that meets the requirements of the GIPS standards
- Coordinate GIPS compliance requirements with broader regulatory rules, including the SEC marketing rule
- Have a clear process for tracking distribution
This alignment helps firms avoid inconsistencies between factsheets, pitchbooks, and GIPS Reports—one of the fastest ways to lose credibility with prospects and regulators.
Some clients prefer not to mention GIPS compliance at all in their marketing (i.e., on their factsheets and pitchbooks) until a client is clearly interested in one of their strategies. Once they meet the definition of a prospect (as outlined in your GIPS standards P&P), it triggers the requirement to send a GIPS Report and they find this smaller list of prospects easier to maintain. For others, having everything in one document including required GIPS compliance information and disclosures is easier to manage than separate documents.
There is no “right” way to manage this, but in either case, having a clear process for tracking and reporting performance errors is key.
5. Documentation of Decisions (Not Just Results)
Here’s a subtle but critical point: Good governance for your GIPS compliance program documents decisions, not just outcomes.
Why was that composite redefined?
Why was this benchmark changed?
Why was this model fee selected?
Strong governance creates an audit trail that:
- Supports sound reasoning (which aides in the verification process or even regulatory exams later on)
- Reduces key person risk
- Makes future reviews faster and less stressful
This is especially valuable when firms grow, merge, or experience turnover. Clear documentation allows others to step in seamlessly and continue critical functions without disruption. More importantly, it enables independent parties, such as a regulator or your verifier, to understand, assess, and validate how you are calculating and presenting performance that may not be immediately intuitive.
6. Governance Is Ongoing, Not a One-Time Project
The best-governed firms don’t “set and forget” their GIPS compliance program. They revisit governance when:
- New strategies launch
- Systems or custodians change
- Regulations evolve
- The firm’s structure changes
In other words, governance evolves with the business—because performance reporting doesn’t exist in a vacuum.
Even for firms that are not regularly launching new strategies, changing systems or structure, an annual review of your GIPS compliance program and governance framework is critical. This review helps confirm that practices have remained consistent, while also providing an opportunity to reflect on whether you are satisfied with your verifier, assess whether new regulations require updates, and reconsider how composites are managed or described.
The best time to do this is at year-end so that if you decide something should be changed, you can do that proactively for the upcoming year, rather than having to fix it retroactively.
What Good GIPS Compliance Governance Really Buys You
When GIPS compliance governance is working well, firms experience:
- A structured, intentional process for validation of your performance results
- A framework that supports consistency and transparency over time
- Fewer surprises or last-minute scrambles during verification or regulatory review
- Greater confidence from regulators and verifiers that you are following established policies and procedures
- Lower operational and reputational risk
Most importantly, it creates trust internally and externally. Good GIPS compliance governance isn’t about being perfect. It’s about being intentional.
Clear ownership. Thoughtful documentation. Real oversight. Those are the firms that don’t just claim compliance, they live it.
Why “Net” Is Not a One-Size-Fits-All Answer
If you’ve worked in the investment industry, you’ve probably heard some version of this question:
“Should we show net or gross performance—or both?”
On the surface, the answer seems straight forward. The rules tell us what’s required. Compliance boxes get checked. End of story.
But in practice, presenting net and gross performance is rarely that simple.
How you calculate it, how you present it, and how you disclose it can materially change how investors interpret your results. This article goes beyond the rulebook to explore thepractical considerations firms face when deciding how to present net and gross returns in a manner that is clear, helpful, and in compliance with requirements.
Let’s Start with the Basics (Briefly)
At a high level, for separate account strategies:
- Gross performance reflects returns before investment management fees
- Net performance reflects returns after investment management fees have been deducted
Both gross and net performance are typically net of transaction costs, but gross of administrative fees and expenses. When dealing with pooled funds, net performance is also reduced by administrative fees and expenses, but here we are focused on separate account strategies, typically marketed as composite performance.
Simple enough. But that definition alone doesn’t tell the full story—and it’s where many misunderstandings begin.
Why Net Performance Is the Investor’s Reality
From an investor’s perspective, net performance is what actually matters. It represents the return they keep after paying the manager for active management.
That’s why modern regulations and best practices increasingly emphasize net returns. Investors don’t experience gross returns. They experience net outcomes.
And let’s be honest: if an investor chooses an active manager instead of a low-cost index fund or ETF tracking the same benchmark, the expectation is that the active approach should deliver something extra—after fees. Otherwise, it becomes difficult to justify paying for that active management.
Why Gross Performance Still Has a Role
If net returns are what investors actually receive, why do firms still talk about gross performance at all?
Because gross performance tells a different, but complementary, story: what the strategy is capable of before fees, and what investors are paying for that capability.
The gap between gross and net returns represents the cost of active management. Put differently, it answers a question investors are implicitly asking:
How much return am I giving up in exchange for this manager’s expertise?
Viewed this way, gross returns help investors assess:
- Whether the strategy is adding value before fees
- How much of the performance is driven by skill: security selection, asset allocation or portfolio construction
- Whether fees are the primary drag—or whether the strategy itself is struggling
When gross and net returns are shown together, they create transparency around both skill and cost. When shown without context, they can easily obscure the economic tradeoff.
Gross-of-fee returns are also most important when marketing to institutional investors that have the power to negotiate the fee they will pay and know that they will likely pay a fee lower than most of your clients have paid in the past. Their detailed analysis can more accurately be done starting with your gross-of-fee returns and adjusting for the fee they expect to negotiate rather than using net-of-fee returns that have been charged historically.
The Real-World Gray Areas Firms Struggle With
How to Present Gross Returns
Gross returns are pretty straightforward. They are typically calculated before investment management or advisory fees and usually include transaction costs such as commissions and spreads.
For firms that comply with the GIPS® Standards, things can get more nuanced—particularly for bundled fee arrangements. In those cases, firms must make reasonable allocations to separate transaction costs from the bundled fee. But, if that separation cannot be done reliably, gross returns must be shown after removing the entire bundled fee. [1]
Once you move from gross to net returns, however, the conversation becomes less straightforward. We’ve had managers question, “why show net performance at all?” This is especially the case when fees vary across clients or historical fees no longer reflect what an investor would pay today. Others complain that the “benchmark isn’t net-of-fees,” making net-of-fee comparisons inherently imperfect. These concerns highlight why presenting net returns isn’t just a mechanical exercise. In the sections that follow, we’ll unpack these challenges and walk through how to present net-of-fee performance in a way that remains meaningful, transparent, and fit for its intended audience.
How to Present Net Returns
This is where judgment and documentation matters most.
Not all “net” returns are created equal. Even under the SEC Marketing Rule, there is no single mandated definition of net performance—only a requirement that net performance be presented. Under the GIPS Standards, net-of-fee returns must be reduced by investment management fees.
In practice, firms may deduct:
- Advisory fees (asset-based investment management fees)
- Performance-based fees
- Custody fees
- Transaction costs
Two net-return series can look comparable on the surface while reflecting very different assumptions underneath. This lack of transparency is one of the main reasons institutional investors often require managers to be GIPS compliant—it simplifies comparison by requiring consistency in the assumptions used and how they are presented or additional disclosure when more fees are included in the calculation than what is required.
And context matters. A higher fee may be perfectly reasonable if it reflects broader services such as tax or financial planning, holistic portfolio construction, or access to specialized strategies. The problem isn’t the fee itself, it’s failing to use a fee scenario that is relevant to the user of the report.
Deciding Between Actual vs Model Fees
The next hurdle is deciding whether to use actual fees or a model fee when calculating net returns. Historically, firms most often relied on actual fees, viewing them as the best representation of what clients actually experienced. But that approach raises an important question: are those historical fees still relevant to what an investor would pay today? If the answer is no, a model fee may provide a more representative picture of current expected outcomes. Under the SEC marketing rule, there are cases where firms are required to use a model fee when the anticipated fee is higher than actual fees charged.
This consideration becomes even more important for strategies or composites that include accounts paying little or no fee at all. While the GIPS Standards and the SEC Marketing Rule are not perfectly aligned on this topic, they agree in principle—net performance should be meaningful, not misleading, and should reflect what an actual fee-paying investor should reasonably expect to pay. Thus, many firms opt to present model fee performance to avoid violating the marketing rule’s general prohibitions. [2]
Additional SEC guidance published on Jan 15, 2026 on the Use of Model Fees reinforced that the decision to use model vs actual fees is context-dependent. While the marketing rule allows net performance to be calculated using either actual or model fees, there are cases where the use of actual fees may be misleading. The SEC emphasized flexibility and that while both fee types are allowed, what’s appropriate depends on the facts and circumstances of the situation, including the clarity of disclosures and how fee assumptions are explained.
Which Model Fee Should Be Used?
Most firms offer multiple fee structures, typically based on account size, but sometimes also on investor type (institutional versus retail clients). That variability makes fee selection a key decision when presenting net performance.
If you plan to use a single performance document for broad or mass marketing, best practice—and what the SEC Marketing Rule effectively requires—is to calculate net returns using the highest anticipated fee that could reasonably apply to the intended audience. This helps ensure the presentation is not misleading by overstating what an investor might take home.
A common pushback is: “But the highest fee isn’t relevant to this type of investor.” And that may be true. In those cases, firms have a few defensible options:
- Create separate versions of the presentation tailored to different investor types, or
- Present multiple fee tiers within the same document, clearly explaining what each tier represents
Either approach can work—but only if disclosures are explicit and easy to understand. When multiple fee structures are shown, clarity isn’t optional; it’s essential.
In practice, many firms maintain separate retail and institutional versions of factsheets or pitchbooks. That approach is perfectly reasonable, but it comes with operational risk. If this becomes standard practice, firms need strong internal controls to ensure the right presentation reaches the right audience. That means:
- Clear internal policies
- Consistent naming and version control
- Training marketing and sales teams on when each version may be used
This often involves an overlap of both marketing and compliance to get it right because getting the fee right is only part of the equation. Making sure the presentation is used appropriately is just as important to ensuring net performance remains meaningful, compliant, and credible.
Which Statistics Can Be Shown Gross-of-Fees?
Since the introduction of the SEC Marketing Rule, there has been significant debate about whether all statistics must be presented net-of-fees—or whether certain metrics can still be shown gross-of-fees. Helpful clarity arrived in an SEC FAQ released on March 19, 2025, which confirmed that not all portfolio characteristics need to be presented net-of-fees. The examples cited included risk statistics such as the Sharpe and Sortino ratios, attribution results, and similar metrics that are often calculated gross-of-fees to avoid the “noise” introduced by fee deductions.
The staff acknowledged that presenting some of these characteristics net-of-fees may be impractical or even misleading. As long as firms prominently present the portfolio’s total gross and net performance incompliance with the rule (i.e., prescribed time periods 1, 5, 10 years),clearly label these characteristics as gross, and explain how they are calculated, the SEC indicated it would generally not recommend enforcement action.
Bringing it all Together
On paper, presenting net and gross performance should be a straight forward exercise.
In reality, layers of regulation, evolving expectations, and heightened scrutiny have made it feel far more complicated than it needs to be. But complexity doesn’t have to lead to confusion.
When firms are clear about:
- Who they are communicating with,
- What that audience expects,
- What the performance is intended to represent, and
- Why certain assumptions were chosen
…the decisions around what gets presented become far more manageable.
Net returns aren’t about finding a single “correct” number. They’re about telling an honest, well-documented story. And when that story is clear, investors don’t just understand the performance—they trust it.
[1] 2020 GIPS® Standards for Firms, Section 2: Input Data and Calculation Methodology(gross-of-fees returns and treatment of transaction costs, including bundled fees).
[2] See SEC Marketing Rule 2 026(4)-1(a) footnote 590 as well as the SEC updated FAQ from January 15, 2026. Available at: https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/marketing-compliance-frequently-asked-questions
In most investment firms, performance calculation is treated like a math problem: get the numbers right, double-check the formulas, and move on. And to be clear—that part matters. A lot.
But here’s the truth many firms eventually discover: perfectly calculated performance can still be poorly communicated.
And when that happens, clients don’t gain confidence. Consultants don’t “get” the strategy. Prospects walk away unconvinced. Not because the returns were wrong—but because the story was missing.
Calculation Is Technical. Communication Is Human.
Performance calculation is about precision. Performance communication is about understanding.
The two overlap, but they are not the same skill set.
You can calculate a composite’s time-weighted return flawlessly, in line with the Global Investment Performance Standards (GIPS®), using best-in-class methodologies. Yet if the only thing your audience walks away with is “we beat the benchmark,” you’ve left most of the value on the table.
This gap shows up all the time:
- A client sees strong long-term returns but fixates on one bad quarter.
- A consultant compares two managers with similar returns and can’t tell what truly differentiates them.
- A prospect asks, “But how did you generate these results?”—and the answer is a wall of statistics.
The math is necessary. It’s just not sufficient.
Returns Answer What. Clients Care About Why.
Returns tell us what happened. Clients want to know why it happened—and whether it’s likely to happen again.
That’s where communication comes in. Good performance communication connects returns to:
- The investment philosophy
- The decision-making process
- The risks taken (and avoided)
- The type of prospect the strategy is designed for
This is exactly why performance evaluation doesn’t stop at returns in the CFA Institute’s CIPM curriculum. Measurement, attribution, and appraisal are distinct steps fora reason—each adds context that raw performance alone cannot provide. Without that context, returns become just numbers on a page.
The Role of Standards: Necessary, Not Narrative
The GIPS Standards exist to ensure performance is fairly represented and fully disclosed. They do an excellent job of standardizing how performance is calculated and what must be presented. But GIPS compliance doesn’t automatically make performance meaningful to the reader.
A GIPS Report answers questions like:
- What was the annual return of the composite?
- What was the annual return of the composite’s benchmark?
- How volatile was the strategy compared to the benchmark?
It does not answer:
- Why did this strategy struggle in down markets?
- What risks did the manager consciously take?
- How should an allocator think about using this strategy in a broader portfolio?
That’s not a flaw in the standards, it’s a reminder that communication sits on top of compliance, not inside it.
Risk Statistics: Where Stories Start (or Die)
One of the most common communication missteps is overloading clients with risk statistics without explaining what they actually mean or how they can be used to assess the active decisions made in your investment process.
Sharpe ratios, capture ratios, alpha, beta—they’re powerful information. But without interpretation, they’re just numbers.
For example:
- A downside capture ratio below 100% isn’t impressive on its own.
- It becomes compelling when you explain how intentionally implemented downside protection was achieved and what trade-offs were accepted in strong up-markets.
This is where performance communication turns data into insight—connecting risk statistics back to portfolio construction and decision-making. Too often, managers select statistics because they look good or because they’ve seen them used elsewhere, rather than because they align with their investment process and demonstrate how their active decisions add value. The most effective communicators use risk statistics intentionally, in the context of what they are trying to deliver to the investor.
We often see firms change the statistics show Your most powerful story may come from when your statistics show you’ve missed the mark. Explaining why and how you are correcting course demonstrates discipline, self-awareness and control.
Know Your Audience Before You Tell the Story
Before you dive into risk statistics, every manager should be asking themselves about their audience. This is where performance communication becomes strategic. Who are you actually talking to? The right performance story depends entirely on your target audience.
Institutional Prospects
Institutional clients and consultants often expect:
- Detailed risk statistics
- Benchmark-relative analysis
- Attribution and metrics that demonstrate consistency
- Clear articulation of where the strategy fits in a portfolio
They want to understand process, discipline, and risk control. Performance data must be presented with precision and context –grounded in methodology, repeatability and portfolio role. Often, GIPS compliance is a must. Speaking their language builds credibility and demonstrates that you respect the rigor of their decision-making process. It shows that you understand how they evaluate managers and that you are prepared to stand behind your process.
Retail or High-Net-Worth Individuals
Many individual investors don’t care about alpha or capture ratios in isolation. What they really want to know is:
- Will this help me retire comfortably?
- Can I afford that second home?
- How confident should I feel during market downturns?
For this audience, the same performance data must be framed differently—around goals, outcomes, and peace of mind. Sharing how you track and report on these goals in your communication goes a long way in building trust. It signals that you are committed to their goals and will hold yourself accountable to them. It reassures them that you are not just managing money, you’re protecting the lifestyle they are building.
Keep in mind that cultural differences also shape expectations. For example, US-based investors are primarily results oriented, while investors in Japan often expect deeper transparency into the process and inputs, wanting to understand and validate how those results were achieved.
Same Numbers. Different Story.
The mistake many firms make is assuming one performance narrative works for everyone. It doesn’t. Effective communication adapts:
- The statistics you emphasize
- The language you use
- The level of detail you provide
- The context you wrap around the results
The goal isn’t to simplify the truth, it’s to translate it to ensure it resonates with the person on the other side of the table.
The Best Performance Reports Tell a Coherent Story
Strong performance communication does three things well:
- It sets expectations
Before showing numbers, it reminds the reader what the strategy is designed to do—and just as importantly, what it’s not designed to do. - It explains outcomes
Attribution, risk metrics, and market context are used selectively to explain results, not overwhelm the reader. - It reinforces discipline
Good communication shows consistency between philosophy, process, and performance—especially during periods of underperformance.
This doesn’t mean dumbing anything down. It means respecting the audience enough to guide them through the data.
Calculation Builds Credibility. Communication Builds Confidence.
Performance calculation earns you a seat at the table.
Performance communication earns trust.
Firms that master both don’t just report results—they help clients understand them, evaluate them, and believe in them.
In an industry where numbers are everywhere, clarity is often the true differentiator.
