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The Global Investment Performance Standards are globally recognized as best practice when it comes to presenting investment returns to prospective clients. Investing in GIPS compliance and GIPS verification can help a firm attract more assets but to truly benefit from GIPS compliance and GIPS verification it's important you understand how to market your claim of compliance. This presentation, given by David Spaulding CEO of The Spaulding Group and John Molesphini from eVestment tells you what you need to know about leveraging your claim of GIPS compliance from a sales and marketing standpoint.
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Incorporating GIPSInto Sales & Marketing
January 23, 2014TSG Monthly Webinar
David Spaulding, CIPMJohn Molesphini
©The Spaulding Group, Inc.www.SpauldingGrp.com 1
Our Speakers
2
David Spaulding, CIPM, is an internationally recognized authority on investment performance measurement. He’s the Founder and CEO of The Spaulding Group, Inc., and founder and publisher of The Journal of Performance Measurement®.
As SVP of eVestment, John Molesphini consults with clients to identify the best analytics and database solutions to meet their needs. Prior to eVestment, John held leadership roles in marketing and client service for Ramsey Quantitative Systems (hedge fund) and INVESCO.
What we’ll discuss (eVestment)
eVestment will share insights on how frequently GIPS compliance matters in manager selection – ultimately impacting asset flows.
In addition, we will look at data from the eVestment database to assess current levels of GIPS compliance by size, location and primary focus on the firm.
Finally, we will speak to success factors for updating databases with regard to GIPS and other criteria most frequently searched by institutional investors.©The Spaulding Group, Inc.
www.SpauldingGrp.com 3
What we’ll discuss (TSG)
The opportunities available to leverage compliance with GIPS into the firm’s sales and marketing efforts.
The role the sales and marketing team(s) can (should) play in the compliance effort.
©The Spaulding Group, Inc.www.SpauldingGrp.com 4
Poll 1: Do you currently claim compliance with GIPS?
A. YesB. No
Poll 2: If your firm claims compliance, has your Firm been Verified?
A. YesB. No
6
Percentage of firms that are GIPS Compliant
7
Source: eVestment database 12/2013
Firm GIPSCompliance
Percentage of Firms Count of Firms
GIPS Compliant
Non-Compliant
GIPS Compliant
Non-Compliant
Total
All Countries 72.4% 27.6% 1190 453 1643
Does compliance vary with size of firm? Absolutely
8
Source: eVestment database 12/2013
GIPS Compliance by Q3 2013 AUM
in USD
Percentage of Firms Count of Firms
GIPS Complian
t
Non-Complian
t
GIPS Complian
t
Non-Complian
tTotal
≥ 100 B 88.8% 11.2% 79 10 89
≥ 10 B, < 100 B 85.3% 14.7% 198 34 232
≥ 5 B, < 10 B 81.3% 18.7% 100 23 123
≥ 1 B, < 5 B 79.5% 20.5% 240 62 302
≥ 500 M, < 1 B 78.4% 21.6% 91 25 116
<500 M 79.6% 20.4% 179 46 225
Assets Withheld 54.5% 45.5% 303 253 556
Does compliance vary with type of primary strategy? Maybe
9
Firm GIPSCompliance
Percentage of Firms Count of Firms
GIPS Complian
t
Non-Complian
t
GIPS Complian
t
Non-Complian
tTotal
Equity Only 68.5% 31.5% 631 290 921
Fixed Income Only 70.3% 29.7% 123 52 175
Multi-Asset Only 100.0% 0.0% 16 0 16
Multi Coverage 79.1% 20.9% 420 111 531
How does compliance map with country-level sponsorship of GIPS?
10
Firm GIPSCompliance
GIPS Country Sponsor
Percentage of Firms Count of Firms
GIPS Compliant Non-Compliant
GIPS Compliant
Non-Compliant Total
All Countries N/A 72.4% 27.6% 1190 453 1643Australia Yes 46.5% 53.5% 20 23 43Austria Yes 100.0% 0.0% 2 0 2Belgium Yes 100.0% 0.0% 1 0 1Brazil No 25.0% 75.0% 1 3 4Canada Yes 55.4% 44.6% 62 50 112China No 0.0% 100.0% 0 1 1Denmark Yes 62.5% 37.5% 5 3 8France Yes 56.3% 43.8% 9 7 16Germany Yes 46.7% 53.3% 7 8 15Hong Kong Yes 42.9% 57.1% 3 4 7India No 0.0% 100.0% 0 4 4Ireland Yes 75.0% 25.0% 3 1 4Italy Yes 50.0% 50.0% 1 1 2Japan Yes 75.0% 25.0% 6 2 8Malaysia No 100.0% 0.0% 1 0 1Netherlands Yes 50.0% 50.0% 3 3 6New Zealand Yes 0.0% 100.0% 0 3 3Norway Yes 50.0% 50.0% 1 1 2Russia Yes 0.0% 100.0% 0 1 1Singapore Yes 41.7% 58.3% 5 7 12South Africa Yes 66.7% 33.3% 22 11 33South Korea Yes 100.0% 0.0% 4 0 4Spain Yes 0.0% 100.0% 0 1 1Sweden Yes 0.0% 100.0% 0 1 1Switzerland Yes 52.6% 47.4% 10 9 19United Kingdom Yes 50.0% 50.0% 58 58 116United States Yes 79.4% 20.6% 966 250 1216Vietnam No 0.0% 100.0% 0 1 1
*No GIPS data for certain country sponsors; Greece, Hungary, Kazakhstan, Liechtenstein, Luxembourg, Mexico, Micronesia, Pakistan, Peru, Philippines, Portugal, Sri Lanka, Thailand, Ukraine. Source: eVestment database 12/2013.
What else are consultants looking for? Top 10 consultant & plan sponsor search terms 2013
Data Point Categories
Data Points
1 Product Asset Info
2 Product Profile Info
3 Firm Asset Info
4 Product Performance
5 Product Equity Characteristics
6 ProductFixed Income Characteristics
7 Product Vehicle Info
8 Firm Ownership Info
9 Product Risk Measures
10 Product Team Description
12
And – what types of strategies are growing in numbers? New products added to eVestment in last 12 months
Strategy Type New Products Added
Hedge Funds 321
US Equity 162
International Equity 160
Global Equity 121
US Fixed Income 104
Emerging Markets Equity 69
Global Fixed Income 67
Global Balanced 51
Alternatives 46
International Fixed Income 34
US Balanced 33
Total 1168
14
The Importance of DatabasesHow Important?
• Most institutional investors use consultants• 81% of public plans• 71% of endowments• 54% of Taft-Hartley plans• 38% of corporate plans• 26% of foundations
• Over 94% of our consultant clients use our database for screening
• 75% of managers never or rarely review the data
Which Databases?
• More than 60 globally• Traditional Strategies in
eVestment:• 32.000+
• Alternative strategies in eVestment:• 23,000+
• 1.2 million annual profile views• 100,000 monthly profile views• Nearly 1,000 allocator clients
15
Most Important Consultant/Third-Party Database 2013
Source: Cerulli Associates Managing RFPs and Database Teams Best Practices for People, Process, and Technology, page 88
Analyst Note: Cerulli asked survey participants to rank the five most important investment consultant or third-partydatabases that they maintain. The chart scores each database based on the number of times they were listed
and a weighted average of their ranking.16
Database Trends
• AUM – more granular breakdowns
• Holdings – collection of holdings data
• Multiple track records and currencies – databases more global
• Investment Professionals – tracking turnover and tenure over careers
• Comprehension – increased questions and fields being added
17
Database Best Practices
• Strategic Database Selection• Managers need to develop a database strategy in order
to optimize exposure and reach their target markets.
• Be Conscious of Deadlines• Although most databases are live, some clients only
receive one data release per quarter.
• Contact Consultants & Analysts• Building relationships can increase your chance of being
in a search.
• Quality Assurance Team• Follow a disciplined QA team and process.
18
GIPS Verification
First granted compliance
Is firm GIPS verified
First granted compliance
Is firm GIPS verified. If, yes
19
GIPS Verification
May not be compliant if it includes income from securities lending activity
Should be 100% or less
Cannot be compliant
20
Summary
• GIPS Compliance is Important to the Institutional Community
• While not a regulated requirement, it is effectively an industry requirement
• Upward trends in alternative asset classes and emerging markets
• Database Population is Evermore Important• Consistent, accurate and timely information reaching
investment consultants• Seek databases that are most appropriate for you to
reach your target market
©The Spaulding Group, Inc. 21
Incorporating GIPSInto Sales & Marketing
David Spaulding, CIPM
©The Spaulding Group, Inc.www.SpauldingGrp.com 22
Why do firms comply with GIPS?
The primary reason has always been marketing
Many markets (e.g., US institutional) virtually mandate compliance in order to be considered
©The Spaulding Group, Inc.www.SpauldingGrp.com 24
Gaining a marketing advantage
At one time, firms could claim a “marketing advantage” by complying; however, today it’s typically a “marketing disadvantage” not to comply (except for markets that don’t yet mandate compliance)
And so, if everyone’s claiming compliance, how can you gain an advantage?
By ensuring you fully embrace compliance and take advantage of all opportunities
©The Spaulding Group, Inc.www.SpauldingGrp.com 25
MarketingPoll 4: Is marketing the most important reason for you claiming compliance?
A. YesB. No
©The Spaulding Group, Inc.www.SpauldingGrp.com 26
While this isn’t intended to be a “Marketing 101” class …
Businesses, all businesses, must be able to differentiate themselves from their competitors
What the firm’s “unique selling proposition” is must be clearly articulated
What is it that differentiates your firm from others?
Make sure this is clearly identified and reflected in your materials, including your GIPS materials
©The Spaulding Group, Inc.www.SpauldingGrp.com 27
It also isn’t a GIPS class
As that would take a full day (though we offer them)
This session is focused solely on the sales and marketing aspects of GIPS
©The Spaulding Group, Inc.www.SpauldingGrp.com 28
Get involved early …
The sales and marketing team(s) should play an active role in the firm’s compliance
The participation should be from the start of the process, and continue onward, as GIPS will be an important part of the firm’s marketing efforts
©The Spaulding Group, Inc.www.SpauldingGrp.com 29
Understand the Standards Anyone dealing with clients or prospects
needs to have a sufficient degree of familiarity with the Standards
This can help ensure that questions are answered correctly and that the right information is provided
Plus, that you make every reasonable effort to provide all prospects with a compliant presentation
©The Spaulding Group, Inc.www.SpauldingGrp.com 30
As an aside … A Q&A was published this past May in the
GIPS® database that asked whether a verifier must test that a firm is meeting the requirement to make every reasonable effort to provide all prospective clients with a compliant presentation (¶ I.0.A.9).
The GIPS Helpdesk responded that verifiers must determine that a firm has established appropriate policies and procedures for this, and test the firm’s procedures.
©The Spaulding Group, Inc.www.SpauldingGrp.com 31
Providing prospects with presentations
While most of our GIPS verification clients have created logs to track prospects that received a presentation, they must also ensure that policies and procedures are in place to ensure there is a reasonable effort made to provide a prospect with a presentation.
©The Spaulding Group, Inc.www.SpauldingGrp.com 32
Providing prospects with presentations
A definition of how the firm defines a “prospect” should be included here as well. The CFA Institute has created “Best Practices for Creating and Maintaining GIPS Policies and Procedures.” Pages 20-22 provide guidance on this topic.
If you have not already done so, you need to create and/or modify your policy accordingly.
©The Spaulding Group, Inc.www.SpauldingGrp.com 33
What we find …
A new term: “interested party.” As distinguished from a “prospective
client.”
©The Spaulding Group, Inc.www.SpauldingGrp.com 34
Getting from being an Interested Party to a Prospect
You need wording to explain when or how an interested party becomes a prospective client.
We see the introduction of the term “interested party,” which is a status before becoming a “prospective client.”
Perhaps if you define these terms; something like:
©The Spaulding Group, Inc.www.SpauldingGrp.com 35
Getting from being an Interested Party to a Prospect
An “interested party” is someone who has indicated interest in learning about your products and services.
A “prospective client” is someone who has explained interest in one or more of your products and provided you with enough information to qualify them as being able to invest with you.
An “interested party” becomes a “prospective client” once you have been able to identify one or more products that the interested party is a candidate for and have been able to determine that they are qualified to invest with you.
©The Spaulding Group, Inc.www.SpauldingGrp.com 36
GIPS composite construction
Sales and marketing should play a role in the GIPS composite decisions
What strategies do you require materials for?
Should variations on these strategies be turned into composites, too?
©The Spaulding Group, Inc.www.SpauldingGrp.com 37
Poll 5: GIPS Compliant Presentations
Do you have GIPS compliant presentations for ALL composites?
Yes No
©The Spaulding Group, Inc.www.SpauldingGrp.com 38
Discretionary or Non-discretionary?
Clients who impose restrictions or require-ments that cause their account to not be truly representative of the composite’s strategy can be declared “non-discretionary” for GIPS purposes
But before rushing to do this, consider:Might other prospects
want similar restrictions?©The Spaulding Group, Inc.
www.SpauldingGrp.com 39
Leveraging restrictions
Rather than make “no sin stocks” accounts non-discretionary, why not create a version of your strategy(ies) that have this restriction? U.S. Large Cap Growth (with sin) U.S. Large Cap Growth (without sin)
©The Spaulding Group, Inc. 40
GIPS materialsWe generally recommend that firms follow the templates provided in the Standards
41©The Spaulding Group, Inc.
www.SpauldingGrp.com
GIPS materials
But you don’t have to be limited, as you can
Incorporate recommended information (e.g., composite average returns)
Include supplemental information Include graphs and charts Show monthly and/or quarterly returns
during the current year (not for every year)
©The Spaulding Group, Inc. 42
What do you do if you have a new strategy with no history?
Not a problem! You can still create a GIPS presentation, with
all of the required disclosures (footnotes), but just no returns
In addition, you can include, as supplemental information, hypothetical, model, or back-tested results if you feel this will be helpful
Just make you provide adequate disclosures!
43©The Spaulding Group, Inc.
Poll 6: Claim of Compliance Online?
Do you have your claim of compliance with GIPS on your firm’s website? Yes No
44©The Spaulding Group, Inc.
www.SpauldingGrp.com
Leverage compliance
By posting that you’re compliant on your firm’s websiteRemember: the “GIPS Advertising Guidelines” must be adhered to
Make people aware that you comply and that you’ve been verified!
©The Spaulding Group, Inc.www.SpauldingGrp.com 45
Should you post your full compliant materials online?
Advantage: you make it easier for everyone to see your performance history
Disadvantage: you don’t have any knowledge of who has looked
By requiring individuals to contact you, you are able to capture details, which can prove valuableWe recommend you direct individuals to someone to capture the prospect’s details
©The Spaulding Group, Inc.www.SpauldingGrp.com 46
Poll 7: GIPS compliant materials online?
Do you have your complete GIPS presentations on your firm’s website? Yes No
©The Spaulding Group, Inc.www.SpauldingGrp.com 47
Track who gets your materials
Keep track of who (and when) gets your GIPS materials
This way, if you identify any material errors,* you can ensure that you provide (a) those who became clients as well as (b) those who are still active prospects with corrected materials (along with an appropriate disclosure)
* Not required to provide disclosure of errors to new prospects
©The Spaulding Group, Inc.www.SpauldingGrp.com 48
Advertising
GIPS has “advertising guidelines” which must be followed if you reference “GIPS” in your advertisement
We’ve often found errors in advertisements (e.g., ones that appear in P&I), so make sure you review them vis-à-vis these guidelines
We can review advertisements for our verification clients: just ask!
©The Spaulding Group, Inc.www.SpauldingGrp.com 49
What if a market you serve doesn’t care about GIPS?
Educate them! Explain
That you’ve chosen to comply with a globally recognized set of ethical principles
That you chose to invest both time and resources into compliance because you believe it’s to the best interest of your clients and prospects
That your firm always tries to follow “best practice,” and for such reporting, GIPS is “best practice.”
©The Spaulding Group, Inc.www.SpauldingGrp.com 50
Get the “ok” from legal/compliance
Ensure that your policies include a review of all GIPS/performance-related marketing materials by compliance/legal
©The Spaulding Group, Inc.www.SpauldingGrp.com 51
Poll 8: Policies and Procedures
Do your policies and procedures describe how you make every reasonable effort to provide prospective clients with your GIPS materials?
Yes No
©The Spaulding Group, Inc.www.SpauldingGrp.com 52
Education is important
All involved with any aspect of GIPS must be sufficiently knowledgeable about the Standards to ensure they don’t put the firm at risk
This includes Compliance Sales & Marketing folks Portfolio management
©The Spaulding Group, Inc.www.SpauldingGrp.com 53
Questions?John Molesphini
eVestment(866-408-3273)
David Spaulding, CIPMThe Spaulding Group, Inc.
(732-873-5700)[email protected]
www.SpauldingGrp.com
54©The Spaulding Group, Inc.
Number of Databases Maintained
56
Source: Cerulli Associates “Managing Database and RFP teams” report 11/2013
“The five most important consultant or other third-party databases that managers populate vary some, but are often the same. Many managers ranked Mercer, Callan, and Wilshire as one of the top-five databases for which they maintain data, and eVestment ranked at the top of the list of every manager.” Cerulli
“Public pension funds' hunt for money managers is moving toward a streamlined search process and away from the traditional RFP, a shift driven by investment consultants.”
Source: P&I 11/2012
The Importance of Databases
• A marketing channel in disguise?• Investments in CRM systems• Expenditures in Web sites• Creation of one-pagers and pitch books
57