We received a question from a client recently, who cited the GIPS(R) (Global Investment Performance Standards) Fees Guidance Statement.

On page 5 we find the following:

Let’s focus on the sentence that reads “In these situations, it is most appropriate to present the return net of all fees (e.g., including administrative fees) since all investors must pay these fees.” Is the “most appropriate” contrasting different ways to calculate net-of-fees returns (i.e., to include all of the fees rather than only the fees the manager charges) or relative to showing gross-of-fee performance? I can see why one might be confused.

I do not interpret this to be “as opposed to gross-of-fee performance,” since this entire guidance statement deals with fees; it is not positioning itself relative to gross-of-fee returns. This guidance statement (page 2) and the standards themselves (¶ I.5.B.1) recommend gross-of-fee returns. Therefore, my interpretation isn’t that this is taking a new direction on the recommendations, but rather stating that if you’re going to report net-of-fee, this is how you should in these cases. If I am mistaken, hopefully someone will correct me.