Although CCM has been in existence for seven years, upon GIPS adoption, CCM proposes to present only the last five years of annual performance. Is the proposal to present only five years of performance consistent with GIPS?
A) Yes.
B) No, CCM must present all seven years of performance during its existence to date.
C) No, CCM may only claim compliance with GIPS when it has established a 10-year GIPS compliant history.
Answer: A) Yes. Upon GIPS adoption, firms are required to present annual performance for at least five years (unless the firm has been in existence for less than five years). Then the presentation must be extended each year until the firm builds a 10-year GIPS compliant history.
VERSUS
Macondo Institutional Asset Management has been managing equity, fixed income, and balanced accounts since 2007. The firm became GIPS- compliant on 1 January 2012 and has prepared GIPS Composite Reports using time-weighted returns for the 2007–2019 period. Fixed-income performance was poor prior to 2015, when a new team of managers was brought on board. When
Jorge Garcia joins Macondo as marketing director in June 2020, he suggests showing performance starting with calendar 2015, the first year that performance started to improve. He proposes to show composites with returns for the five calendar years 2015 through 2019. Does this course of action comply with the GIPS standards?
The GIPS standards require that when a firm initially claims compliance with the GIPS standards, it must present at least five years of GIPS-compliant performance (or for the period since the composite inception date if the composite has been in existence less than five years). After presenting a minimum of five years of GIPS-compliant performance (or for the period since the composite inception date if the composite has been in existence less than five years), the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance. In 2020, Macondo must present performance from 2010 through 2019. Macondo Institutional Asset Management thus cannot drop the years prior to 2015 at the time Garcia suggests it do so. In addition to violating a specific requirement, Garcia’s suggestion was not in the spirit of fair representation and full disclosure of performance.
The firm may eliminate returns from more than 10 years ago from its GIPS Report, as long as it continues to show at least the most recent 10 years. It is recommended, however, that Macondo show its entire GIPS-compliant performance record.
In my opinion, if a firm has been in existence for 7 years, it must show for 7 years, correct? Not just 5 years…? Thank you!