In my response to the Global Investment Performance Standards (GIPS(R)) 2010 edition disclosure draft, I suggested that guidance be provided for fund-of-fund (FOF) managers. The standards clearly apply to such managers, but there weren’t any details offered.

The GIPS Executive Committee (EC) listened (perhaps not actually to me, but at least to someone) and included a provision: however, it is limited to FOF managers in the private equity space. Clearly, guidance was needed, but its scope is somewhat limited. Perhaps more will be added in the future. Given the time constraints the EC faced, one can understand why not much more was addressed at this time. I would suggest they tackled one of the more significant areas.

Here’s the scenario: we have a private equity FOF manager: what returns do they report for their claim of compliance? Since the FOF manager doesn’t control the flows, one might think time-weighted returns apply; however, in the world of private equity, since inception IRR rules. The answer: SI-IRR (see paragraph 7.A.22 for further clarity). Bravo!