Investment Trends

OCIOs Seek Additional Guidance From Latest GIPS Draft Guidelines

Questions remain around asset class classification, legacy assets

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May 15, 2024, BOSTON—While nearly all outsourced chief investment officer (OCIO) providers and search consultants agree there is significant need for industry guidelines, debate remains as to whether new draft Global Investment Performance Standards (GIPS) guidelines released in 3Q 2023 are clear enough regarding asset class classification and the treatment of legacy assets, according to the latest Cerulli Edge—The Americas Asset and Wealth Management Edition.

OCIO providers display their performance track records in multiple ways. More than half of providers (52%) use composites that do not conform to GIPS; instead, they are based on a methodology created by the individual OCIO provider that reflects the investment options available to prospective clients.

The customized nature of OCIO portfolios makes it very difficult to apply current GIPS guidelines to OCIO strategies. While the working draft may help alleviate these challenges, several aspects of the draft may require additional guidance.

“The benefits and drawbacks of the draft guidelines are being debated among OCIO providers, search consultants, and asset managers. More clarification is needed before OCIOs consider implementation,” says Laura Levesque, director.

“For instance, discretion in classifying asset classes still may make it difficult for clients to compare performance among OCIO providers. Additionally, legacy assets are common with OCIO relationships, and it is not clear whether the decision to include or exclude them in performance calculations is the best practice,” she adds.

Of the OCIO providers that do not claim GIPS compliance, only 37% tell Cerulli they will be working on it actively over the next 12 months. However, the working draft was newly released at the time of the survey in 3Q 2023, and it is unclear how many firms had fully digested the potential impact of the guidelines. Cerulli expects these numbers will differ as the CFA Institute reviews and incorporates the public comments where appropriate and finalizes its guidance.




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