Macondo Institutional Asset Management has been managing equity, fixed-income, and balanced accounts since 2007. The firm became GIPS-compliant on 1 January 2012 and has prepared GIPS Composite Reports using time-weighted returns for the 2007–2019 period. Fixed-income performance was poor prior to 2015, when a new team of managers was brought on board. When Jorge Garcia joins Macondo as marketing director in June 2020, he suggests showing performance starting with calendar 2015, the first year that performance started to improve. He proposes to show composites with returns for the five calendar years 2015 through 2019. Does this course of action comply with the GIPS standards?
Solution
The GIPS standards require that when a firm initially claims compliance with the GIPS standards, it must present at least five years of GIPS-compliant performance (or for the period since the composite inception date if the composite has been in existence less than five years). After presenting a minimum of five years of GIPS-compliant performance (or for the period since the composite inception date if the composite has been in existence less than five years), the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance. In 2020, Macondo must present performance from 2010 through 2019. Macondo Institutional Asset Management thus cannot drop the years prior to 2015 at the time Garcia suggests it do so. In addition to violating a specific requirement, Garcia’s suggestion was not in the spirit of fair representation and full disclosure of performance. The firm may eliminate returns from more than 10 years ago from its GIPS Report, as long as it continues to show at least the most recent 10 years. It is recommended, however, that Macondo show its entire GIPS-compliant performance record.