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08 May 2007 Financial Alert -
Niche manager scores performance reporting first

by Anthony Davies

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Niche wholesale fund manager MGH Asset Management has set a first for the NZ industry, as the first fund manager to comply with GIPS - Global Investment Performance Standard – a set of ethical principles introduced and administered by the CFA Institute to establish a globally standardised, industry-wide approach to reporting investment performance.

MGH Asset Management managing director, Mike Gibbs-Harris, says his firm has become GIPS-compliant because it's expected of managers on his target markets. "Because we're dealing with foreign investors, they're used to certain standards, and GIPS is one of them," he says.

Since it was introduced in 1999 (and subsequently relaunched in 2005), GPIS has now been almost universally adopted by US and UK managers, and is now also making inroads into Europe and Asia-Pacific. Last week in Australia, IFSA (Investment and Financial Services Association) adopted GIPS as a member standard. It will take effect from 1 July.

" GIPS help to facilitate a dialogue between investment managers and their prospective clients about the critical issues as to how an investment management firm has achieved performance results that can help determine future investment strategies," IFSA chief executive Richard Gilbert told Money Management.

" Australia is increasingly viewed as a global financial services centre, and internationally recognised benchmarks for performance are effectively a ‘common language’ understood around the world."

Back in New Zealand, Investment Savings and Insurance Association (ISI) chief executive Vance Arkinstall says ISI is currently reviewing all of standards and codes of practice, and considering GIPS as part of that review is one the agenda. However, having a serious look at it probably won't happen until at least next year as "everything is on hold pending the [Ministry of Economic Development’s] Review of Products and Product Providers".

Mint Asset Management chief investment officer Rebecca Thomas is used to working in a GIPS-compliant industry from her time as a UK-based fund manager, however she's not convinced introducing it in New Zealand would be cost-effective. While it's undoubtedly useful, she says, she adds that becoming GIPS-compliant requires calibrating a great deal of historical data as well as ongoing maintenance costs. "It's a massive workload and the compliance costs are significant."

In her view, New Zealand doesn't have the scale to make it worthwhile.

Gibbs-Harris disagrees. "From a fiduciary point of view, if people are investing with you they have to be able to trust your numbers," he says.

It's similar story from James Fairbairn, portfolio director at GAM in London. "GIPS provide clients with a clear understanding of a firm’s performance over time. What you see is what you get. This is important because asset managers need to ensure that the numbers they present provide the highest degree of transparency possible on performance that they are achieving with the money entrusted to them for management," he told The Financial Times.

He adds that traditional marketing of performance figures has been known to focus on a model portfolio, or a best-performing portfolio, giving investors little realistic idea of what to expect from their own assets. However GIPS provides a size-weighted average return to investors net of fees and expenses.

Carl Bacon, who helped develop GIPS back in the mid 1990s, is even more blunt. "It's a question of basic hygiene. If an asset manager is not compliant with GIPS, you have to ask: 'Why not? Do they have weak systems and inadequate processes? Or do they not believe in best practice?'

" You know you can rely on the presentation when an asset manager is GIPS compliant. If they are not, the chances are that the data will have been massaged, wittingly or unwittingly, in the interests of putting their best foot forward," he says.

© 2007 financialalert Limited.

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