There are probably few documents that say as much about timing as the Global Investment Performance Standards (GIPS(r)). But our focus is more limited, and won’t address everything that appears.

One of the most important questions is when should a manager become compliant? Must they wait five years (since a firm must report five years or since inception) or at least one year?

First, the issue about “five years or since inception” is often confusing: if the firm has five or more years of history, THEN they must show at least five (building to 10); however, if the firm is less than five years old, then they must report since inception (and again, build to 10 years of annual returns).

Now, to the question: ASAP! That is, as soon as possible the firm should begin to become compliant. And “why?,” you might ask. Because the sooner you begin, the easier the process.

• The firm can design its policies and procedures, and immediately begin to use them.
• They can add accounts to composites as they are brought on.
• They won’t have to look back over history but rather will be building in “real time.”
• And, the firm can immediately take advantage of their claim of compliance, even though their history may not be extensive.

GIPS now requires firms to show “stub” periods for performance; that is, you must report composite performance if the strategy began with accounts being added within the year. This means that firms can almost immediately have something to report. But just as I discussed earlier this week, returns for short time periods have limited value. That being said, if a firm wishes to grow their business, GIPS compliance is usually a good start. The firm can include a disclosure about the limited time being represented. To me, this would be in keeping with “full disclosure,” but it isn’t a requirement.