The GIPS Executive Committee has just released three revised guidance statements–on real estate, private equity and verification–and is seeking comment on the proposed revisions, which are expected to go into effect on January 1, 2011.

The Global Investment Performance Standards are voluntary ethical norms for the calculation and presentation of investment performance to potential investors. The current versions of the guidance statements on real estate, private equity and verification became effective January 1, 2006. The GIPS Executive Committee, in collaboration with various technical subcommittees– including the Verification/Practitioner Subcommittee, the GIPS Real Estate Working Group and the GIPS Private Equity Working Group–has revised the three guidance statements to reflect the 2010 edition of the GIPS standards, released on January 17, 2010, and to improve existing guidance on the verification requirements and recommendations.

Some of the significant revisions of the Guidance Statement on Real Estate, other than changes made to conform to the 2010 edition of the GIPS standards:

? Enhanced guidance on discretion as it relates to real estate portfolios has been added to the guidance statement.

? Clarification of the composite construction section of the document. Guidance has been added to the Guidance Statement describing investment-level and property-level performance. In addition, composite construction for closed-end real estate funds is addressed and a separate section has been added specifically for determining the non-GIPS-compliant performance period for real estate closed-end fund composites.

? A new section of the guidance statement on fees and expenses has been included.

? A new section has been added addressing when new real estate portfolios are to be included in a composite.

The GIPS Executive Committee asked respondents to the Guidance Statement on Private Equity to comment on these questions:

? Are the descriptions of the industry and vehicles clear enough to distinguish private equity from other asset classes? Is it clear in which instances the private equity provisions apply?

? The private equity provisions can be applied to special cases of evergreen funds of funds. Do you agree with the characteristics? Is it clear how firms would comply with these provisions?

? Is the detail on the IRR calculation and other required metrics adequate? If not, what additional information would be helpful?

? Is the discussion on commitment-based asset management fees and performance-based fees clear? Is the derivation of gross-of-fees and net-of-fees returns understandable? Are there other issues related to fees and the calculation of returns that should be clarified?

? Do you find the explanation regarding how a firm can create funds of funds composite by vintage year of the fund of funds and/or investment mandate, objective, or strategy sufficient? Are the examples illustrative?

? Is the guidance on fair value and valuations for purpose of claiming compliance with the GIPS standards clear?

Some of the more significant revisions to the Guidance Statement on Verification other than changes made to conform to the 2010 edition of the GIPS standards:

? GIPS Verification Report–Previously this section included both required elements and a listing of items generally included in a verifier’s opinion. The vast majority of the items that were formerly denoted as generally included in a verifier’s opinion have been upgraded to items that are required to be included in the verifier’s opinion.

? Knowledge of Firm Policies–This section of the proposed guidance statement was originally included in Section III of the 2005 edition of the Standards. However, it was not included in the 2010 edition of the GIPS standards because the guidance statement on verification was considered a better location for this guidance. The text within this section has been revised as deemed necessary.

The GIPS Executive Committee requested that comments be submitted in writing and received no later than Thursday, November 25.

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.