The Commission de Surveillance du Secteur Financier (CSSF) has published the updated FAQs concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment.
The following questions have been updated:
9.1) How should a UCITS disclose performance fees to the investors and to whom are performance fees of a UCITS payable?
A performance fee (or performance-related fee) motivates an investment manager to outperform a benchmark or achieve some other performance objective. The investment manager is responsible and accountable for the investments of the UCITS and its related performance. Both the fee model and the investment manager as the recipient of such a performance fee must be disclosed in the prospectus. Should there exist a sharing arrangement of the performance fee with any investment advisor(s) contractually linked to the UCITS, the prospectus shall inform about this arrangement.
9.2) How should a UCITS specify and disclose the investment manager’s fee and the investment advisor’s fee, if any, in comparison with other fees paid out of the assets of the UCITS?
In light of point 6 of Schedule A of Annex I of the Law of 17 December 2010 on undertakings for collective investment (“the Law”), expenses or fees shall be disclosed in the prospectus. This disclosure should distinguish between those to be paid by the unit-holders, and those to be paid out of the assets of the UCITS. Where a service fee is directly paid out of the assets of the UCITS to the investment manager(s), and possibly to any investment advisor(s) contractually linked to the UCITS, the method of calculation or the rate of the fee to each recipient must be disclosed in the prospectus.
For the sake of transparency and to allow investors to make an informed judgement about the investment proposed, as required under Article 151 (1) of the Law, the investment manager’s fee and/or the investment advisor’s fee shall only pay for investment management, respectively investment advice. As a general rule, the investment advisor’s fee is expected to be at a lower level than the investment manager’s fee.
When other expenses or fees for activities beyond the direct scope of investment management or advice are payable out of the assets of the UCITS to the investment manager(s) or investment advisor(s), such expenses or fees must be disclosed separately from investment manager’s fee respectively investment advisor’s fee, in a way that clearly informs investors about the nature of such expenses or fees.
In cases where the option of an “all-in” fee is proposed, which implies that only one compensation amount is paid out of the assets of the UCITS to a recipient (commonly the management company) who will afterwards pay the other service providers to the UCITS, the prospectus must clearly state the scope and nature of such “all-in” fee. Ideally, each contractual recipient of this all-in fee should be specified. This provides clarity to investors concerning compensation, fees and expenses in order to allow comparison across UCITS and facilitate investment choice.