Performance Fee Models

ESMA’s call for harmonisation

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.

  • Performance fee models were not dealt with in the EU regulations, nor was any self-regulation issued by any of the European investment management industry associations.
  • Unsurprisingly, ESMA’s analysis of current practices in various EU Member States regarding performance fees found a lack of harmonisation among EU jurisdictions, thus initiating further convergence work. A consultation paper on the proposed 'Guidelines on performance fees in UCITS' was published in July 2019.
  • The final ESMA 'Guidelines on performance fees in UCITS and certain types of AIFs' were released on 3 April 2020.
  • The Guidelines apply to managers of UCITS and of AIFs marketed to retail investors in the EU and the European Economic Area (with some exceptions such as for closed-ended AIFs and for open-ended AIFs that are EuVECAs or EuSEFs).
ESMA Guidelines aim at convergence in five key aspects

The five key aspects of the ESMA Guidelines 

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.

  • Performance fee calculation method should include, at least, the following elements:

- A reference indicator;
- Crystallisation frequency;
- Performance reference period;
- Performance fee rate; and
- Performance fee methodology.
- Computation frequency

  • Performance fee calculation method should be designed to ensure that performance fees are always proportionate to the actual investment performance of the fund.
  • Performance fee model should constitute a reasonable incentive for the manager and be aligned with investors’ interests.
  • Performance fee model should be symmetrical in terms of accrual and its reversal.
  • Performance fees may be calculated on a single investor basis.

Effective date and applicability 

Effective date and transitional provisions 

  • Applicable from June 2020
  • Existing UCITS with performance fees have to comply by the beginning of the financial year following 6 months from the application date of the Guidelines (basically, from January 2021). 
  • UCITS with a performance fee established after the application date of the Guidelines have to comply immediately.

Applicability

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.

Contact us

Dimitri Senik

Dimitri Senik

Leader Investor Trust Services, PwC Switzerland

Tel: +41 79 686 83 62