Question:  do after-tax returns have to be labeled as supplemental information in GIPS compliant composite presentations?

Answer:  No.

Explanation:  Supplemental information is performance information that is not covered by the requirements and recommendations of the GIPS standards.  If you search the requirements and recommendations of the GIPS standards, you may come to the conclusion that, because after-tax returns are not explicitly mentioned, they fall outside the requirements and recommendations of GIPS, which would mean that they would have to be labeled as supplemental information in a GIPS compliant presentation.

That, I would point you to GIPS provision I.4.A.5 and I.4.A.6:

– Provision I.4.A.5 states, “When presenting gross-of-fees returns, firms must disclose if any other fees are deducted in addition to the trading expenses.”

– Provision I.4.A.6 states, “When presenting net-of-fees returns, firms must disclose:  a. If any other fees are deducted in addition to the investment management fees and
trading expenses;  b. If model or actual investment management fees are used; and, c. If returns are net of any performance-based fees.”

Taxes are a portfolio expense; in fact, for a taxable investor, they are typically the largest portfolio expense that impacts returns.  The guidance for these provisions indicate that firms may deduct expenses other than management fees and trading expenses.  If such deductions are made, the guidance requires firms to disclose the types of expenses that are deducted in addition to the trading expenses and management fees.  Thus a firm that presents after-tax performance needs to clearly disclose and describe the taxes that are deducted from returns.  These provisions are part of the GIPS requirements; thus, after-tax returns do not have to be labeled as supplemental information.

Note:  for American firms, if you present after-tax performance and claim compliance with GIPS, I encourage you to also claim compliance with the U.S. Investment Performance Committee After-Tax Guidance.  This guidance provides a framework for best practices in presenting after-tax performance to prospective clients.  Notably, this guidance does not mention supplemental information.  As an aside, I happened to be a member of the group that “harmonized” this guidance with GIPS 2010, and am a proponent of presenting after-tax performance.

Happy studying!