A compliant presentation is a table plus disclosures, and analysts skim the table and ignore the disclosures, which is backwards. Worked Example 5 audits one in full; here is the reading discipline.
What numbers does a GIPS composite presentation show?
Expect these numeric columns; the exact required set is ES1.02's. The year; composite gross-of-fees and/or net-of-fees return; the benchmark's total return; the number of portfolios at year end; composite assets; and total firm assets (required for periods ending on or after 31 December 2020; composite assets as a percentage of firm assets met the requirement only for earlier periods). Then internal dispersion of the full-year returns of portfolios in the composite, and, for periods ending on or after 1 January 2011, the three-year annualised ex-post standard deviation of composite and benchmark from thirty-six monthly returns.
What each column is for:
- Gross versus net. Recompute one from the other using the disclosed fee schedule: a 0.75% fee charged quarterly gives a multiplier of
(1 − 0.0075/4)⁴ = 0.992521, turning a 26.40% gross into a 25.45% net. If your recomputation misses by more than a few basis points, actual fees differ from the model schedule, or something is wrong. Ask which. - Number of portfolios and internal dispersion. Dispersion is the spread of individual client outcomes, normally an asset-weighted standard deviation of full-year portfolio returns. It answers "would my account have got this?" A 17.45% composite with 0.46% dispersion means clients got the same product; the same return with 4% dispersion means the composite covers heterogeneous mandates. Dispersion is not required below six full-year portfolios: itself information, since a four-account composite is a small, possibly bespoke book.
- Composite assets as a share of firm assets. At 3% it is a niche the firm may not care about; at 24% it is a flagship. Both are fine; conflating them is not.
- Three-year ex-post standard deviation, composite and benchmark side by side. This answers the question from Sharpe ratio vs information ratio directly, which is why GIPS added it: you see whether excess return came with excess volatility.
Advertisement
What a GIPS composite presentation cannot tell you
What the presentation cannot tell you matters just as much. It withholds the underlying portfolio returns, so most dispersion figures are unverifiable by you. It does not show intra-year drawdown, or the money-weighted experience of clients (see time-weighted vs money-weighted return): a composite can show a fine TWR while its investors did badly. It does not prove the benchmark is valid (see characteristics of a valid benchmark). And compliance is a claim about process, not merit: the most rigorously compliant presentation in the world can document five years of underperformance. In Worked Example 5 that is nearly the case: five-year annualised gross of 8.91% beats the benchmark's 8.44%, while net of 8.10% trails it by 35 basis points. Both true, both compliant, and only one is what a client received.