GIPS — Global Investment Performance Standards

GIPS is the CFA Institute's voluntary standard for calculating and presenting investment performance. NakedPnL uses the TWR methodology required by GIPS.

Definition

The Global Investment Performance Standards (GIPS) are a voluntary set of ethical principles for calculating and presenting investment performance. They are owned and maintained by CFA Institute. GIPS aims to ensure that performance results across asset managers can be compared on a like-for-like basis, by standardizing the methodology used to calculate returns, the construction of composites that group similar strategies, the disclosures that accompany performance presentations, and the role of independent verification.

What GIPS requires

• Time-weighted return (TWR) calculated at least daily for periods after 2010, with geometric chain-linking across sub-periods.
• External cash flows isolated so they do not contaminate the period return.
• Composites that group all fee-paying, discretionary portfolios with a similar strategy. Cherry-picking accounts is prohibited.
• A defined valuation policy and a defined error-correction policy, both available on request.
• Independent verification at the firm level by a qualified verifier before a firm can claim GIPS compliance.

Why phrasing matters

GIPS compliance is a firm-level claim that covers an entire asset-management firm, not an individual track record. Calling an individual return "GIPS-compliant" is technically incorrect and is treated as misleading by CFA Institute. The accurate phrasing for a return that uses GIPS-required methodology without a firm-level claim is: "calculated using the time-weighted return methodology required by GIPS." NakedPnL uses exactly that phrasing throughout its product surface and documentation.

How NakedPnL uses it

NakedPnL's TWR engine (`lib/calculation/twr-engine.ts`) implements daily geometric chain-linking with Decimal.js precision, isolates external cash flows so deposits and withdrawals never contaminate period returns, and writes a SHA-256 contentHash for every TWR row so the calculation is independently re-verifiable. This satisfies the calculation requirements that GIPS specifies. NakedPnL does not run an asset-management firm, does not maintain composites, and is not GIPS-verified — none of the firm-level claims apply. What NakedPnL publishes is a per-account return calculated using the TWR methodology required by GIPS, signed into a hash chain.

Worked example

// Daily TWR with geometric chain-linking, in line with GIPS-required methodology.
// External cash flows are subtracted from the end NAV so they do not inflate the return.
function periodReturn(
  navStart: number,
  navEnd: number,
  externalFlow: number,
): number {
  return (navEnd - externalFlow) / navStart - 1;
}

const days = [
  { start: 100000, end: 102000, flow: 0     }, // +2.00%
  { start: 102000, end: 101500, flow: -500  }, // -0.49% after stripping the withdrawal
  { start: 101500, end: 103000, flow: 0     }, // +1.48%
];

const twr = days.reduce(
  (acc, d) => acc * (1 + periodReturn(d.start, d.end, d.flow)),
  1,
) - 1;
// Geometric chain-linked TWR; cash flows are isolated, period returns multiply.

Related terms

• Time-weighted return — the calculation methodology required by GIPS.
• Net asset value — the daily input to the TWR calculation.
• Fund administrator — strikes the NAV that GIPS-compliant firms use as input.
• Composite — the firm-level grouping that GIPS verification covers, not relevant for individual track records.