Jonathan Boersma has been working hard to standardize the quantification of investment risk as the chief overseer of the CFA Institute’s Global Investment Performance Standards — voluntary ethical principles known as GIPS. His next task: getting investment firms to start reporting it. And not just traditional asset managers, mind you; Boersma is also taking on the trickier challenge of getting hedge fund, private equity and real estate firms to adopt the reporting standard.

Boersma shepherded the creation of new risk standards last year. But they are only now coming onto the radar of investment firms, as they complete their annual GIPS compliance exercise — preparing standardized reporting documents for dissemination to institutional investors and investment consultants.

Between 85 percent and 95 percent of investment firms across the globe use GIPS, first developed 25 years ago, to report on their investment activities. Alternative investment managers have been slower to take them up. That is changing, says Boersma, as hedge funds and others look to make themselves more attractive to pension fund and other big investors.

Boersma visited Institutional Investor’s offices last week to speak with Senior Writer Frances Denmark about his efforts to get hedge funds, private equity and real estate investors on board with risk reporting according to GIPS.

Institutional Investor: Why risk reporting now?

Boersma: We view performance as a combination of risk and return. You can’t look at them independently. Historically the performance standards have focused on return elements. It’s much easier to standardize calculations and how performance is generated. We’ve recently been trying to address how risk is quantified. [We’re also working on] qualitative measures through certain disclosures.

How did you arrive at a standard risk measure for investment managers?

Risk is very difficult to get your hands around. Getting a common definition is difficult. Some view it as variability of returns. Others believe that a beta greater than one is somehow riskier. Others view risk in terms of bets. For example, a portfolio that is overinvested in technology stocks. Still others see risk as the possibility of losing money or not making money. It’s difficult to create a single definition that encompasses all of those elements, difficult to come up with a measure. The purpose of our standards is to provide comparability.

What risk measurement did you arrive at?

Countless numbers of groups have tried to standardize risk. At the end of the day they just gave up. They end up saying, pick one measure and show that. But that flies in the face of comparability. So we’ve had to start at a very basic level, and introduce a measure of three-year standard deviation of returns.