CFA Centre for Financial Market Integrity Unveils Revised Global Investment Performance Standards-GIPS; North American Investment Managers to Transition from AIMR-PPS by 2006.

CHARLOTTESVILLE, Va. -- The CFA Centre for Financial Market Integrity, the policy setting and thought leadership arm of CFA Institute, released today its newest version of the Global Investment Performance Standards, or GIPS(R) standards, which increase standards worldwide and will create a global standard for investment performance reporting.

The revised GIPS standards represent the most comprehensive and significant upgrade since their introduction in 1999. They will replace the AIMR-PPS(R) standards, which are a predecessor to the GIPS standards. Used primarily by investment managers in the United States and Canada, the AIMR-PPS standards will fully transition to the GIPS standards on 1 January 2006.

"Moving to one standard globally should simplify the compliance process, as well as eliminate confusion concerning multiple standards in the North American marketplace," noted Karyn Vincent, CFA, chair of the AIMR-PPS Implementation Committee. "The revised GIPS standards incorporate many of the best practices already followed by many U.S. and Canadian firms. I believe that the changes reflected in the revised GIPS standards will be welcomed by North American firms."

Based on the principles of fair representation and full disclosure, the GIPS standards provide an ethical framework for the calculation and presentation of investment performance for investment management firms. The GIPS standards benefit two main groups: 1) investment management firms and 2) their current and potential investing clients (including the investment consultants whose job is to evaluate, supervise, hire and dismiss investment management firms on behalf of those clients).

"While compliance is voluntary, the marketplace strongly suggests that firms use GIPS," commented Alecia Licata, senior director of investment performance standards at the CFA Centre. "Anecdotally, we hear about firms that do not report in a GIPS-compliant fashion, even those who use the AIMR-PPS standards, often excluded from competitive bids. In fact, a survey released by Pricewaterhouse Coopers in June 2004 found that 90 percent of global asset management firms surveyed were either compliant with the GIPS standards or actively working to become so. So, we strongly recommend that users of AIMR-PPS now begin working on transitioning to the GIPS standards." (View the survey at (www.pwc.com/Extweb/pwcpublications.nsf/docid/ 0950CDD9B3993B6085256EA10057C58B.) (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your internet browser's URL address field. You may also need to remove an extra space in the URL if one exists.)

Global standardization of investment performance reporting gives investors around the world the additional transparency they need to compare investment managers and will allow managers to compete for new business in foreign markets.

More than 25 sponsors of the GIPS standards worked together with the CFA Centre to establish best practices from each local standard so that investment performance can be compared from one country to another. The CFA Centre is the North American sponsor of the GIPS standards.

"By converging to a universal set of standards that apply to investment management firms worldwide, we plan to eliminate country-to-country investment performance standards, homogenizing the requirements for firms to fully disclose their past performance based on the same criteria," Licata said. "This aids the client in evaluating investment management firms and in making apples to apples comparisons of their track records, regardless of whether the firm is in Toronto, Los Angeles, London or Singapore."

The CFA Centre is working on developing a transition plan to support North American users of the AIMR-PPS standards. This plan will be available later in 2005.

The proposed modifications to the GIPS standards were developed by the CFA Centre-sponsored Investment Performance Council (IPC), which has 36 members from 15 countries on five continents. The IPC's members have diverse and in-depth investment experience, including members from firms of all sizes who specialize in mutual funds, private clients, pension funds, private equity, real estate, investment consulting services, performance measurement and performance verification.

For more information about the GIPS standards, visit www.cfainstitute.org/cfacentre/ips/.

About the CFA Centre for Financial Market Integrity:

The CFA Centre was created to develop timely, practical solutions to global capital market issues, while advancing investors' interests by promoting the highest standards of ethics and professionalism within the investment community worldwide. Established in 2004 by CFA Institute as a distinct division with its own executive director and advisory council, the CFA Centre will build upon the CFA Institute 40-year history of standards and advocacy work, especially its Code of Ethics and Standards of Professional Conduct for the investment profession, which were first established in the 1960s.

About CFA Institute:

CFA Institute is the global, non-profit professional association that administers the CFA curriculum and examination program worldwide and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has 73,000 members in 117 countries. Its membership includes the world's 63,000 CFA charterholders, as well as 131 affiliated professional societies in 52 countries. CFA Institute announces a GIPS(R) certification program for performance measurement practitioners. The curriculum, now in development, will cover professional ethics; the Global Investment Performance Standards (GIPS); and investment performance measurement, analysis, and evaluation. CFA Institute anticipates offering the first examinations in 2006. More information about CFA Institute may be found at www.cfainstitute.org or by calling 1-800-247-8132 or 1-434-951-5499.

GIPS FACT SHEET:

The Need for a Uniform Reporting Standard

AIMR-PPS and GIPS History

In the past, the investment community had great difficulty obtaining meaningful comparisons of accurate investment performance results. Several performance measurement practices hindered the comparability of performance returns from one firm to another, while others cast a shadow on the accuracy and credibility of performance reporting overall.

The need for a common, accepted set of guidelines for the calculation and presentation of investment performance to prospective clients led the Association for Investment Management and Research(R) (AIMR(R)), the predecessor to CFA Institute, to develop the AIMR Performance Presentation Standards (AIMR-PPS(R)) in the late 1980s. The AIMR-PPS standards are the manifestation of two fundamental ethical principles: fair representation and full disclosure.

--In 1991, AIMR formally adopted the AIMR-PPS standards to serve as an industry yardstick for evaluating fairness and accuracy in investment performance presentation.

--By the mid-1990s, investment consultants and potential clients began to exclude from their competitive bids any investment-management firm that did not report their historical results in compliance with the AIMR-PPS standards.

--Today, industry surveys indicate that nearly 80 percent of U.S. investment firms and 65 percent of Canadian firms comply with the AIMR-PPS standards.

--In 1995, with the increased globalization of the investment industry - as well as AIMR's own membership becoming multi-national - AIMR began to address the need for one globally accepted set of performance standards.

--In February 1999, the CFA Institute Board of Governors formally endorsed the Global Investment Performance Standards (GIPS(R)) as the worldwide standard for calculating and reporting investment performance (see http://www.cfainstitute.org/standards/pdf/gips.pdf).

--The introduction of the GIPS standards has allowed investment managers around the world to "transport" their historical investment results to many other countries without having to restate them using different calculation and presentation rules.

Who Benefits?

The GIPS standards benefit two main groups: investment management firms and current and prospective clients (including the investment consultants whose job is to evaluate, supervise, hire and dismiss investment management firms on behalf of those clients).

--By choosing to comply with the GIPS standards, investment management firms assure prospective clients that the historical "track record" they report is both complete and fairly presented. Compliance enables the GIPS-compliant firm to participate in competitive bids against other compliant firms throughout the world.

--Prospective clients have a greater level of confidence in the integrity of performance presentations as well as the policies and procedures of a compliant firm. The Standards facilitate effective comparison of investment results among firms on a global basis. While the GIPS standards certainly do not eliminate the need for other in-depth due diligence on the part of the plan sponsor or consultant, compliance with the Standards provides a level of credibility to the performance results of investment management firms that have chosen to undertake this responsibility.

Who Verifies and Enforces?

Compliance with the GIPS standards is voluntary. Non-compliance does not violate any law or regulation. However, a false claim of compliance does. For example, the U.S. Securities and Exchange Commission has warned investment advisers and managers against falsely claiming that their performance history complies with the GIPS standards. The SEC has sanctioned firms for falsely representing that their performance returns were AIMR-PPS-compliant (for an example, visit http://www.sec.gov/litigation/admin/ia-2023.htm).

Currently, third-party verification of a firm's claim of compliance with the GIPS standards is not mandatory. Instead, prospective clients are encouraged to request that firms under consideration have their claim of compliance verified.

The Investment Performance Council develops and maintains the Standards, but does not conduct verification or "auditing" of a firm's claim of compliance. Rather, an industry of verification specialists - including the biggest accounting firms - has continued to expand to meet the need for third-party verification. (See http://www.cfainstitute.org/standards/pps/industry.html).

How Are the Standards Set (and By Whom)?

The CFA Centre-sponsored Investment Performance Council (IPC) consists of 36 members from 15 countries on five continents. The IPC has revised and updated the Standards in response to many comments and recommendations from industry practitioners. Potential modifications and expansions to new areas (e.g., risk measurement or hedge funds) are studied and proposed by the IPC, (See http://www.cfainstitute.org/standards/pps/ipc/index.html.)

The IPC's members have diverse and in-depth investment experience, including members from firms of all sizes who specialize in mutual funds, private wealth management, pension funds, private equity and venture capital, real estate, investment consulting services, performance measurement and performance verification.

New GIPS Certification Program Announced

In a related development, CFA Institute has announced a new GIPS certification program for performance measurement practitioners. The curriculum, now in development, will cover professional ethics, the GIPS standards and investment performance measurement, analysis, and evaluation. CFA Institute anticipates offering the first examinations in 2006.

Philip Lawton, CFA, who heads the development effort, said, "This exciting initiative responds to a recognized industry need. The GIPS certification program advances the CFA Institute educational and ethical mission by fostering the professional development of performance practitioners and promoting rigorous application of the Global Investment Performance Standards."