The Expert Explains: Would Global Investment Performance Standards give Mauritius a competitive edge?
As Mauritius moves closer to becoming an International Financial Centre of substance and repute, one of its prime objectives is to adhere to the best reporting standards, and, keeping this ultimate objective in mind, the island economy is set to adopt global best practices in the form of Global Investment Performance Standards (GIPS). GIPS is a voluntary standard which governs the calculation and presentation of investment performance based on ethical principles that ensure fair representation and full disclosure of investment. Then, the question of the hour is: Would adoption of Global Investment Performance Standards (GIPS) give Mauritius a competitive edge?
For those who wish to dig deeper, here’s the explanation, straight from the desk of our expert guest contributor, Samantha Seewoosurrun, a reputed professional consultant in the financial services sector:
Representatives of the Mauritian financial services industry and government recently attended a conference organised by Global Finance Mauritius, where Iain McAra, Director of Global Investment Performance Standards at the CFA Institute, stated that these standards must be put in place to support investors and instil confidence in the financial services industry.
As Mauritius seeks to position itself as an emerging International Financial Centre (IFC), professional financial services and communications consultant Samantha Seewoosurrun asks the million-dollar question: Will adoption of GIPS really give Mauritius a competitive edge?
Global Investment Performance Standards (GIPS) are voluntary standards, which have been in existence since 1999. The CFA Institute describes them as a set of standardized, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients.
The standards have so far been adopted in 37 countries – which shows that they are ‘global’ more in aspiration than in practice – but Africa unfortunately stands out for the wrong reasons as the continent where the standards are least developed, with only South Africa having fully implemented them.
It now appears that the second African country to sign up to the standards might be Nigeria, with the President of the CFA Society, Mrs Sade Odunaiya, recently commenting that their objective was to get Nigeria listed, with a four year period proposed for the full adoption of GIPS by players in the capital market.
If we look to Asia, there is growing interest in the adoption of the standards, with Martin Matsui of the Hong Kong Monetary Authority recently describing them as “the universal language for investment performance presentation”.
In terms of China, Mr Peng Cong of the asset management firm Taikang AMC has been quoted as saying that “the GIPS standards are really a good way to represent fairly our investment management skill set and capability to investors. We also want to be more internationalised. Complying with the GIPS standards helps foreign investors to understand insurance asset management companies in China and attracts more assets for us to manage.”
So, is there any downside to the adoption of GIPS by the financial sector of Mauritius? Firstly, it should be noted that GIPS do have some limitations in the sense that they are purely ‘backward looking’ in terms of historical performance, and do not attempt to deal with disclosure of fees and costs in terms of expected future returns, for example, although the CFA Institute is keen to point out that GIPS are evolving over time.
Second, the costs of introducing GIPS are not insignificant, in terms of introducing the necessary technological infrastructure, staff time, consulting requirements and third party verification. However, in terms of reputation, there is also a ‘cost’ of not introducing them, as Mauritian firms would not want to appear as the only ones who are not willing to share their performance record in a way that many of its competitor jurisdictions are already doing.
Overall, the early adoption of GIPS in Mauritius would give firms a competitive edge, allowing them to demonstrate to investors that they operate to the same high standards of other leading financial centres, and that they are an example of best practice in Africa. The opportunity should be seized without further delay.