Pictet AM Interview: The Value of GIPS® Compliance

While the number of GIPS® verified asset managers rises, a very specific set of skills around understanding, managing and maintaining GIPS compliance becomes necessary to set-up longer term GIPS strategies. Having the right processes, data, technology and team in place is critical for ongoing compliance.

Pictet Asset Management has built a GIPS function within its Performance, Attribution and Reporting team. Daniel Weber, Head of Performance Measurement at Pictet Asset Management, shares how his team is addressing GIPS compliance and what his vision is around GIPS verification.

When did Pictet AM become GIPS compliant and what is the value brought to the business?

The first GIPS Standards were published and formally endorsed in 1999. At Pictet, we believed that the creation of a set of global industry-wide ethical principles on how to calculate and report investment performance was a significant move forward and we became one of the early adopters, achieving compliance as a global firm in 2001. To date, we have been claiming compliance for the period of 31.12.1990 to 31.12.2014.

From an internal point of view, being GIPS compliant means:

  • A firm-wide commitment to ethical best practices
  • The set-up of strong internal control processes
  • The guarantee to disclose to any prospective client that (a) we are GIPS compliant (b) for how long we’ve been compliant and (c) who has verified our compliance (in other words, who is our auditor) and to provide a GIPS compliant performance presentation to any prospective client.

From an investor point of view, it means:

  • Confidence in the integrity of the performance presentations
  • The ability to compare performance across various asset management firms

Overall, I would say that we strongly support the GIPS Standards as they improve the marketplace by bringing transparency, comparability, ethics and best practices.

How do you address GIPS verification at Pictet AM?

It is important to note that Pictet AM handles all assets managed by divisions in Italy, Switzerland, UK, Japan, Singapore and China. We have been independently verified by PwC since 2001 and the time allocated to the verification is generally three-four weeks between our London and Geneva offices.

The preparation though takes much longer, approximately 40 man-days, for a total number of roughly 300 composites (500+ portfolios).

Two processes have a significant impact on the way we address verification:

  • The working approach with our verifier (PwC)
  • The solution we use to support the verification process (B-One)

We have defined a specific working approach with our verifier in six steps:

  1. Request for information: six-eight weeks before the audit starts, PwC sends us a RFI to be completed.
  2. Verification preparation: our teams perform the general review of the previous year’s monthly internal controls and checks, looking at all open composites to cross-check portfolio allocation, and prepare all relevant documents.
  3. Verification: PwC conducts a GIPS on-site verification in our locations. If issues are identified by the verifier, they have to be resolved before the verification is completed.
  4. Verification attest report: PwC issues a formal report to Pictet AM attesting the verification.
  5. Findings and recommendations: The verifier provides a document including findings and recommendations reviewed during a formal “closing meeting” with both teams.
  6. Ranking PAM: PwC issues a “Benchmarking Assessment” which provides a ranking of our GIPS Office amongst our peers. This is very helpful for us to check our positioning and to identify areas for improvement.

Last but not least, the solution supporting the verification process has to be able to adapt to our processes and provide the necessary calculations and reports in the easiest way possible. We have selected B-One a few years ago for its ability to automate data load and calculation processes as well as its easiness to design Composite disclosures.

More insight – what is your expert opinion on GIPS verification and where do you see it going in the coming years?

GIPS verification is, according to GIPS standards, not mandatory but a recommendation. Nevertheless, there is an auto-regulation in the industry as most of the Firms being GIPS compliant are also verified (around 85% according to the recent statistics of CFA institute).
According to the standards, a Firm must disclose if it's compliant, if it's verified, by whom and across which periods.
The GIPS verification should not only be seen as an audit on which you will get controlled by an auditor but rather as a helpful contribution to the overall quality of the performance management process, wherein an external independent professional checks your firm’s GIPS processes and provides you findings for improvement.


 

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Topics: GIPS Composites

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