CFA Level III · Level III Core

Overview of the Global Investment Performance Standards: formula sheet

Full chapter guide

Key formulas

Core purpose of GIPS: Fair representation + Full disclosure → Comparability; Common rules for calculation and presentation let prospective clients compare firms on a like-for-like basis.
Who claims compliance: Compliance is claimed by a firm, not by an individual or a product; Compliance is voluntary. A firm must meet all applicable requirements of the standards to claim it.
Who GIPS are aimed at: Firm → presents performance to prospective clients; The focus is on presentation to prospective clients. Their purpose is ethical, not legal.
Nature of GIPS: GIPS = voluntary + ethical + globally applied standards; Compliance is a choice, not a legal duty. Once claimed, it must be complete.
Ownership and governance: CFA Institute owns; GIPS Executive Committee governs and develops; country sponsors support locally; Sponsors promote and support adoption in their market. They do not own or alter the standards.
Core objective: Fair representation + full disclosure; These two ideas underpin every requirement and recommendation.
Claim of compliance: Claimant-wide claim: all applicable requirements met, or no claim; Compliance is claimed for the firm as a whole, not for selected composites. For a firm, all discretionary, fee-paying portfolios must be in at least one composite or pooled fund, as applicable. Asset owners and outside managers follow their own provisions.
Who can claim: Claimant = the firm (never an individual, product or single composite); Compliance is claimed on a firm-wide basis.
All-requirements rule: Compliance = all applicable requirements met; Recommendations are not needed to claim compliance. Partial compliance is not allowed.
Compliance statement: Firm claims compliance only by using the prescribed wording, unaltered; The statement format is fixed. The firm must not alter it, and it cannot say compliant 'except for' something.
Verification: Verification = optional, independent, firm-wide; It applies to the whole firm, not to a single composite. It does not itself make a firm compliant.
Responsibility: Firm is responsible for its own claim; Applies whether or not a verifier is used.
Claim of compliance wording: "[Name of firm] claims compliance with the Global Investment Performance Standards (GIPS®)."; Use this wording. Do not add qualifiers, and do not say compliance is partial.
Required items: advertisement without performance: Claim of compliance + how to obtain the list of composite descriptions (and the list of pooled fund descriptions, where relevant); Check the exact list in the official GIPS text supplied. Missing either item makes the advertisement non-compliant.
Which guidelines apply: Claims compliance + advertises + shows no performance → use the without-performance requirements; If performance is shown, the longer requirements for advertisements with performance apply instead.
Prohibited claims: No partial compliance, no compliance for part of a firm, no claim that GIPS approved or endorsed the firm; Compliance is claimed by the firm itself.

Quick revision

GIPS are voluntary, ethical standards for calculating and presenting investment performance.
The main aims are fair representation and full disclosure of performance.
Common standards make performance comparable across firms and countries.
Standards exist to reduce misleading or inconsistent performance claims.
Compliance is claimed by a firm, not by an individual or a single product.
Compliance applies firm-wide, not selectively to favourable portfolios.
A firm must meet all the requirements that apply to it before claiming compliance.
Partial compliance claims are not allowed.
The firm compliance statement reads "[Name of firm] claims compliance with the Global Investment Performance Standards (GIPS®)." The wording must be used exactly and may not be modified.
The GIPS Advertising Guidelines apply to any advertisement that refers to GIPS compliance. Ads that include performance use the separate compliance statement in the Advertising Guidelines. Ads with no performance may use either statement.
Verification by a third party is voluntary. It tests whether the firm has complied with all composite construction requirements on a firm-wide basis and whether its policies and procedures are designed to calculate and present performance in compliance. It does not ensure the accuracy of any specific composite presentation. A firm must not claim that a specific composite was verified. The verification statement has prescribed wording.
Read each claim for who makes it, what it says and which condition it breaks.

Common mistakes

Saying GIPS are legally required. Fix: Remember GIPS are voluntary and ethical. A firm chooses to claim compliance.
Mixing up fair representation and full disclosure. Fix: Fair representation is about the results being truthful and not selective. Full disclosure is about giving the context to interpret them.
Saying GIPS compliance is mandatory for investment firms. Fix: Remember that GIPS are voluntary. A firm chooses to claim compliance.
Believing country sponsors own or set the standards for their country. Fix: CFA Institute owns GIPS, and the GIPS Executive Committee is responsible for their governance and development. Sponsors promote and support them locally.
Saying an individual portfolio manager can be GIPS compliant. Fix: Remember that compliance is claimed by the firm only. Individuals and single products cannot claim.
Allowing a firm to claim compliance with a statement like 'compliant except for' one requirement. Fix: There is no partial compliance. Either all applicable requirements are met or the claim cannot be made.
Applying the with-performance requirements to an advertisement that shows no returns. Fix: Ask first: is any performance shown? If not, use the short list of two items.
Accepting a claim of compliance that has a carve-out, such as compliance "except for" one requirement. Fix: GIPS compliance is all-or-nothing. A partial claim is not permitted.

Exam tips

Learn the three words: fair representation, full disclosure, comparability. Tie each to a typical flaw.
Expect scenario questions where you must name the objective, not recite the definition.
Always remember GIPS are voluntary and apply to firms.
In essays, give one objective and one reason per point. Extra text earns nothing.
Study this topic with the history and the key features of GIPS, since questions often blend them.
Expect item-set questions to test the voluntary nature of GIPS with tempting wording about requirement by law.
In essays, a command word like state needs a short answer. Give the fact without extra explanation.
Keep the roles apart: CFA Institute owns, the GIPS Executive Committee governs and develops, country sponsors support.