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GIPS & Composite Modules - Vendor Q&A

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1. Introduction

A shortened version of this Q&A appears in the Autumn 2012 edition of the ISC Chronicle. This paper is the full Q&A with the following vendors; Ortec Finance, Wilshire, BI-Sam and Statpro. The questions discuss the benefits of using composite models, the focus of the vendors, the trends in the industry and other related topics.

2. What benefits do you see for asset managers in using a composite module?

Ortec

  • Efficiency through automation: Let the module create the reports instead of manually building them for hundreds of composites
  • Accuracy: Less ‘human error’ risk, and via automated configuration / calculation checks the module can warn for irregularities and possible violations of the GIPS standards.
  • Flexibility: Recalculations based on back-dated changes or changed settings should pose no problem.

Statpro

If companies with a certain number of accounts/composites decide to become GIPS compliant, usage of a standard tool supporting the implementation of GIPS within the firm makes most sense. In-house tools are risky with regards to sustainable support, secure coverage of all GIPS-requirements etc. while a mature vendor software benefits from input which has been collected over years from its various clients.

Wilshire

For asset managers, there are 3 key benefits to using a GIPS composite module: decreased risk, increased efficiency, and a clear marketing advantage. First, given that GIPS compliance was introduced to help provide consistency, a GIPS composite system should offer nothing less. For many firms, GIPS compliance efforts are supported by multiple groups -- performance, marketing, and compliance -- a single platform, such as Wilshire iQCompositeSM, can ensure consistency across an entire organization, as well as mitigate the obvious business risks associated with maintaining that same information manually via spreadsheets. Second, asset managers can realize critical efficiencies by applying company-specific rules sets and constraints to create, and maintain, composites. The results of this rules-based approach can then automatically flow through to the verification and marketing reports to realize time-saving efficiencies as well as provide additional consistency (and further mitigate business risk). In addition, a systematic approach, such as with Wilshire iQComposite, offers tremendous scalability. It may be reasonable to maintain a small handful of composites manually; however, at a certain point, not employing a systematic approach costs manager’s time and increases risk. Third, a GIPS composite system should support the marketing end goal seamlessly. With Wilshire iQComposite, composites within the system automatically flow through to marketing reports with rich graphics capabilities and the ability to include firm branding for a marketing edge in client presentations.

Bi-Sam

  • Clearly to significantly helping asset managers to become GIPS compliant, and to aid and reduce the costs of verification
  • To control, automate and audit the process of constructing and maintaining composites
  • Reduce risk (and cost) of providing incorrect composite information to 3rd parties
  • Reduce the manual effort in providing composite reports
  • Use composite and portfolio level information for corporate and executive management
  • Consistent and transparent calculations and storage of Composite returns and Statistics.
  • Increased ability to produce time-bound and dynamic disclosures for reporting purposes.
  • To retain the history of previous complaint Firm and composite structures and to be able to lock that down so that changes are audited.

3. What are your primary areas of focus in product development of your composite module?

Ortec

  • Flexible data input: Provide multiple types of interfaces for a flexible data delivery.
  • Full coverage of the GIPS standards, including specific provisions for Private Equity and Real Estate composites.
  • Flexible reporting: Web-based reporting engine, covering both formal GIPS reporting and a flexible set of supplementary reports. Interactive GUI in which users can easily access reports for different firms, composites and reporting periods. Also the tool allows authorized users to create their own reports via a report designer.

Statpro

StatPro’s primary focus is of course to ensure that any change in standards is reflected in the software at an early stage. For this reason we maintain regular contact with the CFA and verifiers. However, StatPro’s aim is to not only provide a GIPS tool but offer functionality as well as services and advice that allow the user to get the most out of the application.

Wilshire

Current client feedback places a high emphasis on support for meeting stringent verification requirements, as well as support to help asset managers gain a marketing edge in a highly competitive market landscape. For Wilshire iQComposite, our primary areas of recent product development focus on flexible reporting with multiple output formats. We currently allow clients direct access to the reporting engine, with the ability to create ad-hoc reports. Looking forward, we are developing an enhanced error correction reporting methodology to support clients with more complex sets of constraints.

Bi-Sam

  • Comprehensively address all GIPS requirements
  • Providing an easy to use, flexible and highly automated solution
  • Providing smart and highly automated disclosure reporting
  • Enable ease of migration from other solutions
  • Providing sophisticated workflow capabilities
  • Supporting firm hierarchies and changes to corporate structures over time, to maintain a changing Firm structure to and the history of portfolio relationships.
  • Enhancing the security & audit coverage within the application to enable a global usage of the GIPS composites module
  • Optimising controls over Composites, and the underlying portfolio structure, such as Minimum account size controls, Firm locking and Impact analysis
  • Providing outlier analysis and alerts (based on tolerances, dispersion etc)
  • The developments were are proposing will enable clients to supply multiple return streams for use within different composites (GIPS and Non-GIPS),as well as to further utilise the link between the Total Return module

4. What trends/demands have you seen for a composite module?

Ortec

  • Reporting on portfolio level
  • Automated disclosure generation
  • Track significant/material changes in reports

Statpro

When clients implement GIPS composite they always have compliance in mind. Once achieved, they look for opportunities for further application in order to benefit from synergies, usually centralise data management or client reporting for example. With the right software tools in place GIPS is not the end of a project but an efficient platform to start building upon.

Wilshire

Based on input from clients as well as multiple verifiers, we see robust error correction and reporting that allows asset managers to provide total transparency as most topical. The recent industry-wide recommendation to be able to quickly and seamlessly communicate performance number updates/corrections as reported to the marketplace (verifiers, clients, etc.) makes a systemized approach even more vital to the asset manager. We are in the process of working with current clients and verifiers in the community to ensure that Wilshire iQComposite is appropriately positioned to deliver the most effective solution.

Bi-Sam

  • GIPS 2010 requirements – provided some additional requirements such as error correction and impact analysis
  • A general trend for composite reporting requirements for non- GIPS purposes, particularly global views of performance across the firm
  • More flexible reporting options, including more web-based/portal delivery
  • More comprehensive security and audit requirements due to global users across a firm structure
  • More transparency over the Returns and statistics calculations, including more risk analysis

5. How does a client’s data governance affect the effectiveness of your module?

Ortec

As is always the case, the quality of reporting depends heavily on the quality of the input data. Our module contains extensive data checking features, aimed to identify data quality issues at an early stage of the calculation process. Besides that, the module is specifically designed to swiftly handle partial data (re-) deliveries or backdated data changes.

Statpro

For GIPS it is mandatory to have complete, correct and transparent data. Processes linked to the generation and maintenance of this data needs to be clearly defined and documented. Therefore, all GIPS projects require thorough data governance, which need to be put in place anyway to achieve GIPS compliance.

GIPS software relies on the quality of the underlying data. Like any software tool it can only work as good as its data input allows. What StatPro Composite does is helps clients identify data inconsistencies and data gaps, the ineffective bits in their data governance.

Wilshire

No matter how diligent a client’s data maintenance, hiccups during the import process are inevitable when transitioning from one process (e.g. manual/spreadsheet-based) to another (e.g. systematic approach). From our experience, the best combination is a system that features highly flexible import capabilities, such as Wilshire iQComposite, coupled with a client whose implementation team knows the data, inside and out. In many ways, that combination is preferred to “clean” data. Of course, going forward, given that our approach is designed around the notion of a central repository to calculate and store relevant composite and firm data of many types and then feed that information to other parts of the system as needed, once the data is properly imported and massaged, the future flow of information is incredibly seamless.

Bi-Sam

  • It is of course critically important that input data including valuation and returns data provided to the composite module is accurate and correct
  • This may require an increased emphasis on checks and controls provided by the module
  • This is also the case with regards to increased security and audit requirements

6. How can clients maximise the benefits of using a composite module?

Ortec

  • Fully integrate the module in the performance measurement workflow.
  • Avoid having to manually change or touch up generated reports whenever possible.

Statpro

As described above, GIPS compliance should not be the end point of a GIPS project. The workflow and data household which has been established for this purpose can be used for more helpful analysis including internal and external reporting. We see this with customers who have worked with StatPro for years who don’t use it for GIPS at all.

Wilshire

From our viewpoint, clients can best maximize benefits by first, including all business areas with a vested interest in the GIPS compliance process access, and second, by using a system to help facilitate the entire process – from data management, composite creation, to internal compliance reporting, to verification support, all the way to client marketing. We very much view Wilshire iQComposite as a tool to help facilitate communication among disparate, but equally vital, groups within an organization within a consistent framework. If you then add to that a system designed for scalable automation and throughput that can support the full GIPS compliance cycle, clients have the potential to improve communication and productivity while saving valuable time.

Bi-Sam

  • Use of the module for other reporting purposes within the firm
  • Utilise the extensive performance and risk reporting capabilities
  • Use the module to help in the verification process
  • Helping marketing and other areas of the firm by providing timely and accurate composite data
  • Further utilise existing functionality for internal reporting and to easily track and control updates to underlying data and the impact on the top-level composites (Minimum account size and impact analysis)
  • Reducing costs to the firm by all of the above

7. How will the proposed developments to GIPS affect the usefulness of your module?

Ortec

We commit ourselves to keeping the software up to date with the latest developments in the GIPS standards. Changes in the standards are announced well in advance, and when required our module will be updated before the changes come into effect.

Statpro

With more than 100 clients using our software in order to remain GIPS compliant, it is of strategic importance for us to proactively ensure the solution remains useful when standards are changing. Our commitment to remain up-to-date with GIPS evolution is an important part of the tool’s usefulness.

Wilshire

We maintain a regular dialogue with clients and verifiers in the marketplace to ensure that Wilshire iQComposite remains able to respond to evolving recommendations in the GIPS compliance process. The platform is incredibly powerful, with the flexibility to change and update existing template on an ad hoc basis. As a key differentiator, we provide clients with full access to our reporting engine specifically so that they can easily respond to on-the-fly reporting on their own. When the scope of modifications falls beyond what clients are able to facilitate on their own, we also employ a multi-tiered approach to client support that included 1:1 support from a relationship manager, full access to a dedicated help desk and timely escalation to product experts as needed.

Bi-Sam

We believe that in the strategic plan for GIPS, there is nothing fundamental that would affect the usefulness of the module: these are primarily guidance statement provisions

8. How can the use of a composite module help in the GIPS verification process?

Ortec

Some steps of the verification process regarding calculations and reporting might become less extensive: calculations and generated reports can be checked for a sample data set instead of the full data set if the underlying algorithms of the module are known and verified. Still, checking some calculated data will always be necessary for a thorough verification

Statpro

A mature GIPS module such as StatPro’s has undergone hundreds of verifications for more than 10 years now. Feedback given by verifiers and users has been converted into functionality and reports best serving the needs of all parties involved. There are standard reports helping to identify outliers. There are validation rules highlighting potential problem data. And there are export tools helping to analyse data history and error corrections as well as an audit trail which allows analysis of change-history.

Wilshire

The most seamless approach to the verification process is to ensure that the reporting stems from the same system in which the composites live and are maintained. In developing Wilshire iQComposite, we worked directly with verifiers to be sure the platform could respond to both the industry-wide, generally accepted requirements needed to support the verification process, as well as the flexibility and direct access to reporting to ensure that specific needs could be met with ease.

Bi-Sam

  • By providing reporting specifically tailored to the verification process
  • By providing extensive audit capabilities for the verifiers
  • By providing a reputable and reliable GIPS solution

9. Have any verifiers currently endorsed your module?

Ortec

Various parties (including verifiers) offer certification services for GIPS software. However, to be clear, GIPS compliance is accredited to the asset management organization and not the system or vendor. As such, product endorsement by a third party does not make a system GIPS compliant. That being said, yes, Ortec Finance has proactively looked for input from consultants, verifiers and clients during the development phase of its GIPS module. This independent feedback has confirmed that the methods implemented within the software are in line with the GIPS standards. Ortec is working towards having a GIPS compliant client in 2012.

Statpro

Verifiers have to be independent, so will never recommend any specific software, otherwise they would not be allowed to verify a client who followed their recommendation. However, as previously mentioned, verifiers have asked for certain output or information being provided by StatPro Composites. These requests have been converted into standard features, so that all clients and verifiers can benefit from the work done. So there are a certain number of verifiers worldwide who know our solution pretty well and who have successfully verified firms which use our tool. In various countries verifiers have asked for training on our GIPS solution and seek regular updates on new functionality. Note that it is a common misunderstanding that there is a GIPS compliant software in the market – this does not exist, only a firm can be compliant with GIPS and it’s the firm which is verified, not any software which is only a vehicle to achieve and maintain compliance.

Wilshire

Our goal in this market is to remain an objective provider. To that end, we’ve made a concerted effort to be sure that development input was vetted from both clients as well as multiple verifiers. While it is not our aim to secure an endorsement from any specific verifier, we do receive referrals consistently – the primary feature for which we tend to be recommended is our high degree of scalability. The Wilshire iQComposite stands apart in that it was designed with the ability to monitor hundreds of thousands of accounts – our client base, and recommendations, tend to reflect that.

Bi-Sam

Our understanding is that no reputable verifier would specifically ‘endorse’ any vendor GIPS module, for various reasons – for example vendor systems would need to be continually monitored by the verifier as they evolve over time

ISC would like to thank Ortec Finance, Wilshire Associates, Statpro and Bi-Sam for their cooperation and input into this article.

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