ON THE SAME PAGE — IN THE SAME LANGUAGE: SOCIETY AIMS TO STANDARDIZE GLOBAL PERFORMANCE MEASURES

Parlez-vous investments?

To persuade portfolio managers around the world to speak the same language, the Association for Investment Management and Research wants to standardize global investment performance measurement.

The professional organization, which bestows the chartered financial analyst designation on investment professionals, last week proposed requiring investment managers overseas to measure returns and report historic performance using methods modeled after the widely-used AIMR standards in the U.S. and Canada.

AIMR’s attempt to put foreign countries on an equal footing with the United States should be welcome news to U.S. investors, who want to be sure performance is accurately portrayed so that it can be compared among fund and account managers. Many countries don’t have agreed-upon performance reporting standards so deciphering a foreign investment manager’s performance report can be a job for Sherlock Holmes.

Some Asian investment managers, for instance, show book value instead of current market value when reporting how much securities positions are worth. Some foreign managers also don’t calculate their returns for fixed-income securities using accrual accounting methods, which recognize gains as they occur.

The performance guidelines would prevent cherry-picking of a firm’s best performing accounts in calculating results. “If you take your best accounts, it’s not a representative sample,” says Lee Price, a CFA and principal at Dresdner RCM Global Investors in San Francisco, which runs $60 billion.

AIMR’s delving into global standards also would likely heighten its exposure and membership. The non-profit association, based in Charlottesville, Va., and reporting $40 million in revenues last year, has 75,000 members, with less than 10% hailing from outside of the United States and Canada.

Michael Caccese, general counsel and senior vice president of AIMR’s ethics and advocacy group, says the desire to expand overseas had nothing to do with the proposal. “The s
tandards weren’t introduced to increase membership,” he says. “They were drafted to address the issue of how to measure the performance of managers across borders.”

Nevertheless, the group has seen a surge of international interest. Of the almost 50,000 candidates that will sit for AIMR’s chartered financial analyst exam this year, 33% are from outside North America, vs. 17% of 17,300 candidates five years ago.

“This year, Asia alone will have 10,000 people sitting for the exam,” Mr. Caccese says. “Ten years ago, there were 10,000 sitting for the exam around the world.”

The committee that developed the proposed standards has members from such countries as Malaysia, Chile and Japan. Their 12-page proposal was released last week, with public comment invited until Dec. 31 and final guidelines expected early next year. Managers whose audited results pass muster with AIMR can market themselves as “AIMR compliant.”

The major principles already have been adopted by organizations in several foreign nations, including Australia, Thailand and the United Kingdom. They differ somewhat from the U.S. standards. (The new ones don’t cover real estate and other alternative investments, for instance.) But generally they would require investment managers to:

* provide records of performance history for a minimum of five years or since inception;

* offer a time-weighted calculation of performance, including amortization of income;

* present composite performance across all portfolios rather than “representative portfolios;”

* comply with local or country-specific laws in case of conflicts with AIMR’s standards.

Mr. Caccese expects institutional investors to lead the way with the new standards as they did in 1993 when standards were rolled out here.

Ted Aronson of Aronson + Partners in Philadelphia, with $1.3 billion in assets, is not that familiar with the global proposal but says: “It’s almost embarrassing that it’s taken to the end of this century fo
r us to have standards. The more the merrier.”