The Association for Investment Management and Research (AIMR) announced today that its board has approved new fee and private equity provisions for the Global Investment Performance Standards (GIPS).

The GIPS standards provide a standardized approach, based on the principles of fair representation and full disclosure, for firms to calculate and report investment returns. They are followed by firms in over 30 countries worldwide.

Investment firms that report their results in accordance with GIPS will soon be required to include fee disclosures using standardized guidelines for presentation, treatment and terminology. The new fee provisions will take effect Jan. 1, 2005. Firms are encouraged to adopt them earlier, if possible.

The new fee provisions will standardize the calculation and presentation of the impact of fees on investment returns, allowing for greater comparability of returns and increased transparency to investors. The also recommend that firms show gross-of-fees performance results but require them to disclose in each presentation the fee schedule that is appropriate to the presentation, i.e., appropriate to both the product being sold and the type of prospective client being shown the results. All returns (both gross and net) must be calculated after the deduction of the actual trading expenses incurred during the period.

The new private equity provisions of the GIPS will also take effect Jan. 1, 2005. The GIPS Private Equity Valuation Principles outline requirements in five areas: input data; calculation methodology; composite construction; disclosure; and presentation and reporting.

The provisions state that firms must calculate the annualized Since Inception-Internal Rate of Return using either daily or monthly cash flows and the period-end valuation of unliquidated remaining holdings. Firms must also calculate net-of-fees returns based on defined criteria, and must present both the net-of-fees and gross-of-fees annualized SI-IRR of the fund for each year since inception. Other reporting requirements include several multiples: total value to paid-in capital, cumulative distributions to paid-in capital, paid-in capital to committed capital, and residual value to paid-in capital.

The provisions require that firms document their valuation procedures and disclose that the procedures are available upon request. Valuations procedures should be reviewed by a qualified person or entity that is independent from the valuer, such as an advisory board or committee.