VC Public Comment

Smm

Informations

• Publié par: Chyok
• Nombre de lectures: 15
• Langue: English

Extrait

INVITATION TO COMMENT:
The Addition of Venture Capital and Private Equity Provisions and Guidance to the
®Global Investment Performance Standards (GIPS ) Standards

The Investment Performance Council (IPC) of the Association for Investment Management and
®Research (AIMR ) seeks comment on the proposals set forth below regarding the addition of a
section to the GIPS to address the calculation and presentation of venture capital and private
equity investment returns.

Comments must be submitted in writing and be received by AIMR no later than March 31, 2003.
All comments and replies will be put on the public record. Comments should be addressed to:

Association for Investment Management and Research
Professional Standards & Advocacy Department
Reference: GIPS Venture Capital and Private Equity Provisions
P.O. Box 3668
Charlottesville, Virginia 22903
FAX: [phone]
E-mail: [e-mail]

AIMR accepts responses by fax or e-mail, but it would be helpful if a hardcopy response is
submitted as well.

Executive Summary

The Venture Capital and Private Equity Subcommittee of the IPC was created in March 2000 to
develop new provisions for the GIPS standards to address the calculation and presentation of
venture capital and private equity investment returns. The Subcommittee reviewed various
regional reporting and valuation requirements, identified critical performance presentation and
valuation issues, and developed what it believes represents global “best practices” outlined in the
draft provisions and valuation principles presented below.

Attached is the Report of the Venture Capital and Private Equity Subcommittee, which includes
proposed GIPS provisions, guidance to support and clarify the proposed provisions, proposed
valuation principles, and a glossary of terms. The IPC seeks public comment on the attached
proposal. AIMR and the IPC view industry comment on the Standards as critical to maintaining
their relevance and usefulness to the market.

Background

In 1995, AIMR recognized the need for one globally accepted set of standards for the calculation
and presentation of investment performance. AIMR sponsored and funded the Global
Investment Performance Standards (GIPS) Committee to develop and publish one global
standard by which firms calculate and present performance to clients and prospective clients. On
19 February 1999, AIMR formally endorsed the Global Investment Performance Standards as
the worldwide standard to calculate and present investment performance. However, the GIPS
1
standards, as originally drafted, do not address in detail the calculation and reporting of
performance of venture capital and private equity assets. The GIPS Committee decided to
postpone the development of global provisions for this technical area until such a time that the
GIPS standards received broader industry acceptance.

Following the approval of the GIPS standards by the AIMR Board of Governors in 1999, AIMR
established the Investment Performance Council (IPC) to assume the ongoing responsibility of
implementation, promotion, and interpretation of the Standards. The IPC created four technical
subcommittees to expand the GIPS provisions to address real estate, leverage and derivatives,
venture capital and private equity, and fees. The Venture Capital and Private Equity
Subcommittee consists of industry representatives from five different countries on three
continents who provided practical experience and global perspective to the process. The
proposal developed by the Subcommittee is designed to provide a full set of minimum provisions
that will be globally relevant, as well as acceptable and practical, in all markets that conform to
GIPS or Country Versions of GIPS (CVG).

Summary of Proposed Venture Capital and Private Equity Provisions for the GIPS
Standards

The proposal includes the proposed provisions, guidance to support and clarify elements of the
proposal, valuation principles, and a glossary of terms. If adopted, the Venture Capital and
Private Equity provisions will be incorporated into the GIPS standards as Section 7. The venture
capital and private equity provisions supplement all of the required and recommended elements
of GIPS (outlined in Section II.1. through Section II.5.), except where the venture capital and
private equity provisions override the existing GIPS provisions for valuation (7.A.1. and 7.B.1.),
calculation methodology (7.A.2. and 7.A.3.), fees (7.A.4. and 7.A.5.), and presentation and
reporting of returns (7.A.16.). Outlined below are some of the significant issues addressed in the
proposal.

Scope of the GIPS Venture Capital and Private Equity Provisions
The proposed venture capital and private equity provisions apply to all venture capital and
private equity investments other than open-end or evergreen funds. Open-end or evergreen funds
must follow the main GIPS standards (Sections 1-5).

GIPS Venture Capital and Private Equity Valuation Principles
The proposal requires firms to comply the GIPS Venture Capital and Private Equity Valuation
Principles. These principles are meant to bring consistency and transparency to the valuation
methodologies used for venture capital and private equity investments. Without the foundation
of a meaningful valuation, the various calculation and reporting provisions are not of much
value. The principles represent the minimum requirements for valuations and further
recommend the use of a fair value methodology.

Disclosure and Reporting Requirements
The proposal outlines several disclosure and reporting requirements related venture capital and
private equity investments.

2
• If the firm complies with any local or regional valuation guidelines
• Availability of the firm’s documented valuation review procedures
• Net-of-fees and gross-of-fees annualized Since-Inception Internal Rate of Return for each
year since inception
• Annualized Since-Inception Internal Rate of Return for a representative benchmark for
each year since inception
• Unrealized appreciation/depreciation.
• Total committed capital
• Paid-in capital and cumulative distributions to date
• Total current invested capital
• Investment Multiple and Realization Multiple
• Ratio of paid-in capital to committed capital
• Ratio of distributed capital to paid-in capital
• Ratio of residual value to paid-in capital
• Ratio of total value to paid-in capital

Implementation of the GIPS Venture Capital and Private Equity Provisions
The IPC has agreed to follow an evolutionary approach to the expansion of GIPS which involves
a strategy of not introducing major changes to GIPS before January 2005. This is to maintain a
reasonable balance between improving and moving the GIPS standards towards the “gold
standard” and avoiding undue disruption to firms that are, or are in the process of, claiming
compliance. Consideration is also given to those countries that are currently in the process of
adopting GIPS in their local marketplace, either directly or through a Translation of GIPS or
Country Version of GIPS. The IPC wants to allow all countries a period of time to implement
the core of GIPS before moving the target by making significant changes to the fundamental
provisions. Accordingly, the Venture Capital and Private Equity provisions are proposed to be
effective 1 January 2005.


Comment Requested
AIMR seeks public input on the proposals set forth in this document. Issues to consider in
conjunction with this proposal include:

1. Do you agree with the proposed provisions related to Calculation Methodology,
Composite Construction, Disclosures, and Presentation and Reporting?
2. Are there other disclosures that should be considered?
3. Are there any other relevant risk measures that should be required to be disclosed?
4. Will your firm be able to meet all of the requirements beginning 1 January 2005
considering some provisions require since inception calculations?
5. Do you agree with the GIPS Venture Capital and Private Equity Valuation Principles?
6. Do you agree that the use of the GIPS Venture Capital and Private Equity Valuation
Principles should be required?
7. Do you agree with the recommended use of a fair value methodology?
8. Should the Standards require the use of a fair value me If so, when?

3
If commentators put forward other proposals, AIMR requests they explain how their proposals
satisfy these objectives.

4
INVESTMENT PERFORMANCE COUNCIL
Venture Capital and Private Equity Subcommittee

Proposed Venture Capital and Private Equity Provisions for the GIPS Standards


Proposed Effective Date: 1 January 2005


7.A. Requirements

Following are provisions that apply to the calculation and presentation of venture capital and
private equity investments other than open-end or evergreen funds (which should follow the
main GIPS provisions). The venture capital and private equity provisions supplement all of the
required and recommended elements of GIPS (outlined in Section II.1. through