ISI rejects intl standard and goes it alone
The Investment Savings and Insurance Association has decided not to use the international standard for measuring fund performance, but develop its own one.
Thursday, August 5th 2010, 7:22AM 
7 Comments
by Jenha White
The association said yesterday that it has rejected the Global Investment Performance Standards (GIPS) and asked PwC to proceed to prepare initial draft proposals for a suitable standard for discussion. However chairman of the GIPS council and director of the Chartered Financial Analyst (CFA) Society Louis Boulanger says it is very strange for the ISI to be looking to regulate over and above global standards.
He met with PwC last week to communicate this point alongside the New Zealand representative of the GIPS council Peter McCaffrey.
"We met with PwC and tried to convince the team that GIPS is appropriate for the New Zealand industry."
The GIPS standards are a set of standardised, industry-wide ethical principles that provide investment firms with guidance on how to calculate and report their investment results to prospective clients. Organisations in nearly 30 countries sponsor and promote the Standards.
Boulanger says when he was involved in developing GIPs the ISI was constantly kept informed of developments to ensure it would be a good thing for New Zealand.
He says he has no idea what consultation PwC has done on its recommendations as it did not seem to have a good understanding of GIPS and no-one Boulanger knows in the GIPs world had been contacted about the new standards being developed.
The ISI's media release yesterday also stated that it plans to take the Australian Investment Performance Standard, which is "essentially based on GIPS but amended for the Australian retail market, and further develop this for the NZ retail market".
However Boulanger says Australia is a sponsor of GIPs and it is on the Council which means it is not allowed to have its own standard and he is not aware of one.
"I've sent an email to them about this and I have also alerted a few people in the GIPs world to this news."
Boulanger was also frustrated to see the ISI statement claiming that "Whilst the GIPS are widely recognised as the leading standard in Europe and North America, it is primarily designed for the wholesale funds management industry that is prevalent in those parts of the world and would require amendment to be suited to providing retail investors with information suited to their needs."
Boulanger said he could not believe that statement as GIPS are blatently global standards which apply to both the institutional and retail funds management industry.
He said GIPS is principle based and elaborate, it is 60 pages long with 300 pages of guidance statements on how to interpret and implement it.
"It is a robust and comprehensive standard developed over many years through industry experts and it is an open process where recommendations can always be made."
The ISI also stated that the establishment of a best-practice industry-wide Investment Performance standard achieved greater importance following the well publicised issues with the Hulijch KiwiSaver funds.
However McCaffrey stated at the time of that issue that he believed all fund managers should adopt GIPS which require rigorous auditing to create an environment where no fund manager can manipulate funds.
He said in the Huljich situation under GIPS "compensation" payments would have been recorded as a cash inflow, rather than an investment gain, and so would not have boosted performance.
The ISI said it has been keeping the Minister of Commerce and the Ministry of Economic Development advised of progress as it is possible that standards for reporting of Investment Performance may be legislated to ensure that all fund managers are required to comply, not just ISI members. The Minister will comment on this later today.
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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Comments from our readers
Now is the time for the financial services industry to collaborate and demonstrate to regulators (and those who are watching us closely) that an idea can be collectively considered and promptly responded to.
IFA, PAA, SIFA & other industry bodies: now is your time to say something intelligent!
Obviously any ISI standards will always be compared to GIPS, and criticised where they are deficient. But only once we know what the proposed ISI standards are can anyone claim that they are worse than GIPS.
PWC thinks they can do better, there is no crime in that. But lets see what they come up with. And should the standards that PWC creates for the ISI be bad, they could be easily over-ruled by legislation.
Michael, this is quoted from GIPS 2010.
And this is stated as the first objective of the GIPS Executive Committee: "To establish investment industry best practices for calculating and presenting investment performance that promote investor interests and instill investor confidence;"
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Why on earth would an entity wish to reinvent a process that has been developed, used and relied upon globally? What signals does this latest initiative send to global managers wishing to participate in the NZ market, or NZ talent wanting to solicit offshore funds?
I would urge to the ISI to re-consider all of the implications of their decision – factoring in just how important the NZ market is to the rest of the world