GIPS Survey Time
The GIPS(R) Executive Committee has posted a survey here, and they’d like your input. The survey will only take you a few minutes.
One question they ask is what changes you’d make to the Standards. I offered three:
- Change the composite return from an asset-weighted one to an equal-weighted one. This was a controversial subject back in the pre-AIMR-PPS(R) days, but hasn’t been an issue since. That said, it should be, since the returns of larger accounts have a greater influence on the results when you asset-weight: why should they? Why not a true average? Anyway, my belief (shared my others, too); don’t expect it to go anywhere.
- Eliminate the aggregate method for composite returns (or at least recommend against it). It produces something other than the average of the underlying accounts: it gives the return of the composite. No one manages the composite. Firms manage the accounts within the composite. I don’t expect this to occur, either, but I was asked, and so, I give my opinion.
- Require the use of the Internal Rate of Return for ALL strategies where the manager controls the cash flows, regardless of the asset class or whether the plan/partnership is open or closed ended. We use the IRR to measure the return of managers who control the cash flows. Why have a complicated set of rules for its use. I know that the GIPS EC is looking into broadening the role of the IRR: this is one they should consider!
Off hand, I don’t know for how much longer the GIPS survey will remain, but please take a moment and fill it out: it’s confidential! That said, if you’re going to write some of your answers in a blog post (or newsletter) as I have, you kind of lose your confidentiality … but in a knowing way.