The Guidance Statement on Broadly Distributed Pooled Funds Approved

May 3, 2017

The Guidance Statement on Broadly Distributed Pooled Funds was officially approved on March 13, 2017. The following are highlights of what is included, and what changed from the original drafting.

  • Applies to public funds that meet the following 3 criteria:
    1. The pooled fund is broadly distributed.
    2. There is typically no or minimal contact between the firm marketing the pooled fund and prospective pooled fund investors.
    3. The firm has the ability to influence the pooled fund’s official documents or marketing materials.
  • Does not include hedge funds, private equity funds, real estate funds, etc.
  • Does not apply to sub-advisors of funds that do not create or influence the fund documents.
  • Purpose of the guidance:
    • To provide clarity to fund managers on what the GIPS Standards require, and recommend, with respect to pooled funds;
    • To establish a minimum level of information to be provided to prospective pooled fund investors, given the differences in local regulations regarding pooled funds;
    • To emphasize the priority of local laws and regulations; and
    • To provide guidance as to best practices regarding pooled funds.
  • Required items that must be included in at least one document that is intended to reach prospective pooled fund investors prior to or concurrent with their purchase of the fund (i.e. a prospectus, or the equivalent legal doc, or marketing material):
    1. Description of the pooled fund’s investment mandate, objective, or strategy
    2. An indication of the pooled fund’s risk, either qualitative narrative or quantitative metric, as mandated by the local regulators.  If not mandated, the firm may choose.
    3. Pooled fund returns; if not mandated by local regulation, it must be the pooled fund net return which is net of all fees charged against the fund.  Sales charges and loads should not be deducted, but their treatment should be disclosed either way.  Note that firms must show one of the following options:
      • 1, 3, & 5 year annualized returns (through the most recent period); if less than 5 years, must include the since-inception annualized return
      • Period to date  and 1, 3, & 5 year annualized returns; if less than 5 years, must include the since-inception annualized return
      • Period to date  and 5 years of annual returns
    4. The currency used to express performance.
  • Recommended items to be included:
    1. Benchmark total returns (for the same time periods as the pooled fund) and benchmark description
    2. Disclosure regarding sales charges and loads
    3. The GIPS Pooled Fund Claim of Compliance
  • Firms are not required nor recommended to provide a compliant presentation in the materials; however, if a prospective pooled fund investor requests a compliant presentation, then it must be provided.
  • The new safe harbor provision is the biggest difference between the exposure draft and final guidance:
    • Certain legal/regulatory regimes already require the four disclosure items.
    • CFA Institute will review the legal/regulatory requirements and determine if they qualify for inclusion under the safe harbor provision.
    • If so, the firm will be considered to meet the requirements of Provision 0.A.9 and this guidance statement.
  • Effective January 1, 2018; firms are encouraged, but not required, to apply this guidance prior to that date.

The Guidance Statement on Broadly Distributed Pooled Funds can be found here. Please contact your verification team with any questions.