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News May 2, 2011 Issue

GIPS Seeking Comment On Draft Guidance For Alternative Investments

If you manage alternative investments and claim compliance with the Global Investment Performance Standards (GIPS), you have an opportunity to affect just what standards you will meet.

GIPS is seeking comment on its draft Guidance Statement on Alternative Investment Strategies and Structures. Comments, which may be submitted through the GIPS website, are due June 15.

"Alternative investments" once only referred to private equity and real estate, said the draft’s executive summary. In recent years, the definition has expanded to include hedge funds, derivatives based strategies, and more. These additional structures have not been the subject of dedicated guidance however, and firms managing a variety of alternative investments have been required to apply a general framework to achieve GIPS compliance.

"There has been a perception that because the GIPS standards do not include dedicated guidance to such investments, that compliance was not possible," said the draft. The new guidance statement has been created "to provide clarity on how firms managing alternative strategies and portfolio structures can apply the GIPS standards."

The draft cautions that the guidance statement will apply to alternative investment strategies and structures that a firm may not typically consider to be an alternative strategy or portfolio structure.

Investment types and portfolio structures within the scope of the new guidance include:

  • Hedge funds and hedge fund-like strategies;
  • Funds of funds, where the underlying funds are invested in either traditional or alternative strategies;
  • Structured products requiring ongoing management of the underlying investments;
  • Non-index related commodities and their derivatives;
  • Investment strategies materially altering potential return characteristics using derivatives (such as currency and interest overlay strategies);
  • Portable alpha, liability driven investment, long-short strategies and other investment techniques; and
  • Strategies investing in non-traditional assets.

All firms claiming GIPS compliance must consider the new guidance statement together with all of the GIPS provisions, guidance and interpretations, said the draft.

The guidance statement includes questions and answers at the end of the document

The expected effective date for the final guidance statement is January 1, 2012.