Advancing GIPS compliance in Ghana and West Africa's growing investment sector: An in-depth discussion

As the investment industry in Ghana and the sub-region continues to experience growth, there is a need to promote to encourage adherence to GIPS standards within Ghana and throughout West Africa.

According to the NPRA, the total assets of Ghana's pension industry stood at GHS221 billion Ghana Cedis in December 2022, representing a growth of 22.9 percent. Meanwhile, mutual funds are also experiencing growth, meaning that various fund managers must report performance to investors.

We need to standardize performance reporting in Ghana and the sub-region by raising awareness, providing education, and encouraging the adoption of standards among investment firms and other stakeholders.

What then is GIPS? The Global Investment Performance Standards (GIPS) are a set of standardized, globally accepted ethical principles and guidelines that investment firms use to calculate and present their investment performance to prospective clients.

The GIPS standards are maintained and promoted by the CFA Institute and are designed to provide investors with consistent and comparable information about the historical performance of investment firms.

The primary objectives of GIPS compliance include but are not limited to the following:

Fair representation and full disclosure:

GIPS aims to ensure that investment firms provide accurate and transparent performance information to clients, promoting fair representation and full disclosure of investment performance for informed decision-making.

Comparability:

GIPS compliance enables investors to compare the performance of different investment firms consistently, aiding in the evaluation of different investment management options.

Marketing integrity:

GIPS compliance helps maintain the integrity of marketing materials produced by investment firms by reducing the risk of presenting misleading or incomplete information to clients through standardized performance reporting.

Global credibility:

GIPS is recognized and respected globally. Investment firms that comply with GIPS demonstrate a commitment to high standards of professionalism and ethical conduct, enhancing their credibility and reputation in the global marketplace.

Competitive advantage:

GIPS compliance can serve as a competitive advantage for investment firms, signaling to potential clients a commitment to transparency, accuracy, and ethical practices, which can attract investors seeking trustworthy and reliable financial partners.

Regulatory recognition:

In some jurisdictions, regulators may require investment firms to comply with GIPS or have policies that encourage its adoption, helping firms meet regulatory requirements and avoid legal issues.

In summary, GIPS compliance is essential for investment firms as it fosters transparency, comparability, and trust in the financial industry. It enables investors to make more informed decisions, promotes fair competition among investment firms, and enhances the overall credibility of the investment management profession.

It's important to note that GIPS compliance is not mandatory or legally required but is a voluntary set of standards developed by the CFA Institute to enhance the credibility and transparency of investment performance reporting. Investment firms choose to adopt GIPS standards voluntarily to demonstrate their commitment to ethical practices and provide clients with standardized and comparable information about their historical performance.

While GIPS compliance is not a legal requirement, it offers several benefits to investment firms, making it essential to encourage compliance. Examples of such benefits are as follows:

Enhanced Credibility: GIPS compliance signals to clients and investors that a firm adheres to high standards of performance reporting and ethical conduct, enhancing its credibility.

Global Recognition: GIPS is recognized and respected internationally, facilitating cross-border comparisons and making it easier for global investors to evaluate and compare different firms.

Competitive Advantage: Firms that are GIPS compliant may use this as a competitive advantage when marketing their services. It can differentiate them from non-compliant competitors.

Improved Investor Confidence: GIPS compliance can instill confidence in investors by providing them with consistent and reliable information on investment performance, helping them make more informed decisions.

Industry Best Practices: GIPS standards represent industry best practices for performance reporting. Following these standards can contribute to the overall professionalization of the investment management industry.

To encourage GIPS compliance in Ghana, efforts should focus on increasing awareness, providing resources and support, encouraging regulatory support., and addressing any misconceptions or barriers that may exist within our local financial industry.

We need to promote collaborative initiatives involving regulatory bodies - SEC, industry associations like the Ghana Securities Industry Association (GSIA), and educational institutions, which can play a crucial role in promoting the adoption of international best practices, including GIPS standards.

For a firm to achieve GIPS compliance status, it involves adhering to a set of standardized principles and guidelines outlined by the CFA Institute. Investment firms seeking GIPS compliance must follow specific procedures to ensure accurate and transparent performance reporting. Below are the general requirements set by the CFA Institute for becoming GIPS compliant.

Adoption of GIPS Standards:

Investment firms must formally adopt the GIPS standards and commit to complying with these principles in the presentation of their historical investment performance.

Definition of the Firm:

Clearly define the "firm" for which performance is presented. The definition should encompass the legal entity, subsidiaries, and affiliates that are part of the firm.

Time-Weighted Rate of Return Calculation:

Calculate and present the time-weighted rate of return for portfolios by GIPS standards. The calculation should exclude the effects of external cash flows within the reporting period.

Composite Construction:

Create and maintain composites that represent the firm's investment strategies and mandate. Composites are groups of portfolios with similar investment objectives.

Disclosure of Fees:

Disclose all fees that are relevant to the firm's investment strategies. This includes management fees, transaction costs, and other charges that can impact performance.

Verification:

Consider having the firm's performance results independently verified by a third-party. While verification is not mandatory, it enhances the credibility of the reported performance.

Minimum Assets under Management (AUM):

GIPS compliance may require the firm to have a minimum level of assets under management for the composite to be presented.

Firm-wide Policies:

Establish and adhere to firm-wide policies and procedures that ensure consistent and ethical application of the GIPS standards.

Period of Compliance:

Comply with GIPS standards for a minimum of five years to provide clients with a sufficient historical perspective on the performance of your firm.

Presentation and Reporting:

Present and report performance in a standardized format, including specific information about the firm, composite descriptions, and the calculation methodology.

Internal Controls:

Implement internal controls to ensure the accuracy and reliability of performance data. This includes procedures to address errors, outliers, and other anomalies.

Distribution of GIPS-Compliant Reports:

Distribute GIPS-compliant reports to all prospective clients, ensuring that the information is consistent and meets GIPS requirements.

The investment industry is not static so the GIPS standards also evolve, and firms should stay informed about any updates or changes to the standards. Additionally, seeking the guidance of a compliance professional or consultant with expertise in GIPS can be beneficial during the implementation process

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For a deeper understanding of this subject and further assistance kindly contact EcoCapital Investment Management Ltd., on +233(0)501 553 502 or send us a mail via invest@ecocapinvestment.com.

EcoCapital Investment Management Limited (EIML) is a company incorporated in Ghana and licensed by the Securities and Exchange Commission (SEC) as an Investment Management firm, and by the National Pensions Regulatory Authority (NPRA) as Fund Manager of both second and third tiers of the national pension scheme.

Our mandate as an investment firm is to deliver premium financial solutions and investment management services to both retail and institutional investors in Ghana. Services on offer at EcoCapital include Wealth Creation and Management, Investment Portfolio Management, Pension Fund Management, Mutual Funds, Retirement Planning, Investment Research and Advisory. The firm has three mutual fund products under management, namely; Prime Fund, Nordea Income Growth Fund, and the Weston Oil and Gas Fund.