Compliance
You put a track record in a proposal. Somebody asks which accounts are in it, and which ones used to be.
There is a meaningful difference between maintaining composites with a time-weighted, asset-weighted methodology and claiming compliance with the GIPS standards. Firms conflate them constantly, usually in good faith, and the conflation is the source of most of the trouble in this area.
| Using the methodology | Claiming compliance | |
|---|---|---|
| What it means | Returns time-weighted, composites asset-weighted, with no firm-wide assertion | A firm-wide assertion that every requirement of the standards is met |
| Scope | Can apply to some composites | Applies to the whole firm, not selected products |
| What it requires | Discipline and consistent calculation | Policies, documentation, error correction, disclosure, and ongoing maintenance |
| Verification | Not applicable | Optional but expected, performed by an independent verifier |
| What you may say | That composites use a time-weighted, asset-weighted methodology — without claiming or implying compliance | That the firm claims compliance — with the required disclosures attached |
Saying the second when only the first is true is a marketing problem that becomes a regulatory one. Saying the first plainly is honest and, for most firms, sufficient.
A composite groups accounts managed to the same strategy so that a track record describes the strategy rather than a flattering account. That is the whole point. Selecting the good accounts is precisely what composites exist to prevent.
Which means the hard part is not the arithmetic. It is the discipline of inclusion: every discretionary account managed to that strategy, added in a defined way, removed in a defined way, with the reasons recorded.
Three reasons that have nothing to do with compliance. It gives you an honest answer to what your strategy has done. It makes performance comparable across time when your platform changes. And it is one of the first things examined during due diligence when a firm is sold — a firm that can produce clean composites is priced differently from one that cannot.
Composites on our platform use a time-weighted, asset-weighted methodology, computed from the same records the trades were executed against. We do not claim GIPS compliance, and any provider telling you the distinction does not matter is telling you something useful about how they read rules generally.
Questions this did not answer? Ask them directly — that is what the twenty minutes is for.
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