EUROPE: ESMA Final Report on Guidelines on performance fees in UCITS and certain types of AIFs

Friday April 3 2020

ESMA has published its final guidance on performance fees in investment funds – applicable to Undertakings for the Collective Investment in Transferable Securities (UCITS) and certain types of Alternative Investment Funds (AIFs).

The guidelines provide comprehensive guidance to fund managers when designing performance fee models for the funds they manage, including the assessment of the consistency between the performance fee model and the fund’s investment objective, policy and strategy, particularly when the fund is managed in reference to a benchmark.

The guidelines aim at harmonising the way fund managers charge performance fees to retail investors, as well as the circumstances in which performance fees can be paid. The common requirements will allow convergence in how NCAs supervise performance fees models and disclosure across the European Union (EU). The guidelines are applicable to both UCITS and certain types of AIFs, in order to ensure a level playing field and a consistent level of protection to retail investors.

The Guidelines on Performance Fees

• Guideline 1 – Performance fee calculation method
• Guideline 2 – Consistency between the performance fee model and the fund’s investment objectives, strategy and policy
• Guideline 3 – Frequency for the crystallisation of the performance fee
• Guideline 4 – Negative performance (loss) recovery
• Guideline 5 – Disclosure of the performance fee model

The Guidelines in Annex IV of this report will be translated into the official EU languages and published on the ESMA website. The publication of the translations will trigger a two-month period during which NCAs must notify ESMA whether they comply or intend to comply with the guidelines. The Guidelines will apply from the end of this two-month period.

Click on the above link for further information.