Since the launch of the UCITS framework, there has never been any real harmonisation of the application and disclosure of performance-based investment management fee models.
The calculation of a performance fee should be verifiable and designed to ensure proportionality between performance fee and the actual investment performance of the fund.
- A reference indicator;
- Crystallisation frequency;
- Performance reference period;
- Performance fee rate; and
- Performance fee methodology.
- Computation frequency
The Manager must implement and maintain a process in order to demonstrate and periodically review that the performance fee model is consistent with the fund’s investment objectives, strategy and policy.
The frequency for the crystallisation should be defined in such a way as to ensure alignment of interests between the portfolio manager and the shareholders, and fair treatment among investors.
- The performance reference period is equal to the whole life of the fund and cannot be reset
- Fulcrum fee model and other models which provide for a symmetrical fee structure (negative performance fees) are applied.
The Guidelines reaffirm that a performance fee should only be payable in circumstances where positive performance has been accrued during the performance reference period.
The Guidelines require adequate information about the existence of performance fees and their potential impact on the investment return and therefore oblige fund managers to ensure this is the case.
Effective date and transitional provisions
The Guidelines apply to UCITS and AIFs marketed to retail investors, except for closed-ended AIFs and venture capital, private equity and real estate AIFs.