An analysis of the ‘Global Investment Performance Standards’ (GIPS) and its expected merits and impacts on the local funds industry

Abstract

In 1926, Henry Ford, founder of the Ford Motor Company and pioneer of an assembly line technique of mass production, said the following: “Today’s standardization…is the necessary foundation on which tomorrow’s improvements will be based. If you think “standardization” as the best you know today, but which is to be improved tomorrow – you get somewhere. But if you think of standards as confining, then progress stops.” (Ford, 1926) Standardisation is a process which aims to generate a framework that fits all players within a particular industry. Through the process of standardisation, stability and uniformity are achieved that will facilitate comparisons between two or more equivalent items. The Global Investment Performance Standards (hereinafter GIPS or ‘the standards’) seek to fulfil this role of standardisation in the area of investment performance reporting on a global basis, whereby investment management firms could voluntarily meet a set of requirements whose main goal is that of providing a common ground with respect to performance information and calculation methodologies. This research study sought to understand the Maltese financial industry’s awareness and understanding of the standards, and how practicable it would be to adopt the latter within the context of the local funds industry scenario. An exercise was thus carried out by taking the Net Asset Value (hereinafter NAV) prices per share of a particular fund in order to present its performance as per GIPS requirements, combined with a qualitative research in terms of interviews conducted with industry players. It was therefore concluded that currently there is an immense lack of awareness of the GIPS standards in Malta, and as a result these are made redundant within the local funds industry. A more detailed discussion can be found under the ‘Analysis’ section, where one can also find recommendations for further research on this topic. Mainly, it would be interesting to see whether the level of awareness of GIPS within three/four years time would have increased, and also whether a particular industry association or the government would start lobbying in favour of adopting these standards in Malta.