Can you imagine living in a world where there are no concise terms to represent concepts or idea groups?

This will mean that anytime you chat with someone or you write something, you will have to use a lot of words to describe the concept you want to convey. And the message is likely to be lost in the many words.

Take the following statement for example:

– As a person or institution that makes investments in portfolios of securities on behalf of clients under the investment objectives and parameters the client has defined (investment manager) or an entity that manages investments on behalf of participants, beneficiaries or the organization itself (asset owner) that is complying with the Global Investment Performance Standards (GIPS Standards), the use of an aggregation of one or more portfolios that are managed according to a similar investment mandate, objective or strategy (composite) is the primary way to present the accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed (performance) of a of a set of rules, behaviors or procedures an investor or investment professional uses when deciding how to allocate capital among several options (strategy) to any person or entity that has expressed interest in one of the Firm’s use of an aggregation of one or more portfolios that are managed according to a similar investment mandate, objective or strategy (composite) set of rules, behaviors or procedures an investor or investment professional uses when deciding how to allocate capital among several options (strategies) and qualifies to invest in the aggregation of one or more portfolios that are managed according to a similar investment mandate, objective or strategy (composite) (prospective client).

That, my friend, is 200+ mouthful-of words!

I bet you had to read it at least three times and mentally group concepts before you could understand what you just read (I got lost on the fifth line).

And that is me assuming that you know what an investment is, what portfolios and securities are and what it means to allocate, in investing, to name a few.

Now, look at the same statement here, using single terms that express associated concepts:

As an investment manager that is complying with the GIPS Standards, the use of a composite is the primary way to present performance of a strategy, to a prospective client.

How does that sound for clarity? Shorter and clearer, definitely! Point made with the fewest words possible.

If you were in GIPS World (where the GIPS people come from) and fluent in GIPS (the language of GIPS World made up of GIPS Standards terms and principles), I could have just said:

the use of a composite is the primary way to present performance of a strategy.

And you will need no further qualifying statements or explanations for you to understand.

So, would you have understood this second statement (which is closer to the normal way someone will convey such a thought), without prior knowledge of the meaning of the first?

That depends on the level of your exposure to the investment industry. In other words, you understand:

1. What the terms performance, composite and strategy mean
2. Who an investment manager is and what they do
3. Who a prospective client is and the nature of their relationship with the investment manager, and,
4. What in the world, the GIPS Standards are

So, did you understand the second statement or even the convoluted first one at all?

If you answered yes, then, congratulations!

You are well on your way to mastering the Global Investment Performance Standards (GIPS Standards). And I bet you have some basic knowledge of how the investment industry works and what the GIPS Standards are at the minimum, to pull that off.

But if you are like me, some 15 odd years back or like most people – when they start dipping their toes into any new field of knowledge – you will need to know what certain key terms mean, before you can understand my second, more concise statement off the bat.

Such level of understanding requires some exposure to the field where the terms are used, for you to know what they mean, in that field – because you can find the same term in a different field, meaning something entirely different.

Take the term, composite, for example, as used here and how the GIPS Standards defines it here. Same term, different fields, different meaning.

You will also realize that, as you dive deeper into a niche area (like diving into the GIPS Standards as an investment professional), you must have some basic to intermediate exposure to the broader field of knowledge, to better understand the niche.

So, what we see here is that (and I know you are not new to this notion), every distinct field of knowledge has its own terms or jargon, that describe concepts unique to that field.

And the first principle you must follow to understand any new field of knowledge, is to know the key terms that describes the basic and common concepts within that field (like learning the insults first in a new language 😊).

Anytime someone uses any of the terms specific to that area of knowledge, you will need no further explanation to understand what the person is saying. That gives you the freedom to dive deeper without ending up in total confusion.

Ditto for understanding the Global Investment Performance Standards (GIPS Standards).

So where should you start from to understand how the GIPS Standards work?

Well, here goes.

You must have a basic understanding of:

1. The structure of the investment industry and how things work there (including specific concepts and terms there)
2. How the narrower sub-sector and process of investment management works (including specific concepts and terms there)
3. And how the sub-process of investment performance evaluation within investment management works (including specific concepts and terms there)

With these under your belt, you are now ready to start exploring the Global Investment Performance Standards.

And if you intend to comply with the Standards (as an Investment Manager or Asset Owner) or enforce compliance (investment industry regulator), then you will need more than just basic, knowledge, skills or experience, especially in the field of investment management.

But that is why you are reading this post – diving deeper into learning about the GIPS Standards – hopefully, with some basic knowledge in the foundational areas above.

And where better to start, than getting some key jargons rolling off your tongue (speaking GIPS) – if you catch my drift so far.

So, in the next series of posts, you will be taking a foot-dipping  dive (one foot first, I promise) into some basic GIPS Standards terms or definitions.

Once you get these under your belt and add some core principles (link to post), it will be easier for you to build on this knowledge to master how to comply  (as an investment manager or asset owner) and use the Standards (as an investor or regulator).

So, let’s begin the dive!

Check out the next post in this GIPS Standards Basic Terms series, to explore what the term Global Investment Performance Standards means.

>> GIPS Standards Basic Terms