Performance fees: calculation techniques and market practices - Introduction

Over the past years, performance fees have gained traction among UCITS managers. Unlike other elements pertaining to the UCITS environment, performance fees have been historically only lightly regulated. In addition, there was a great disparity among national regulators in the EU, from an outright ban to no regulation at all.

In 2019, this disparity prompted the European Securities and Markets Authority (ESMA) to launch a full-scale consultation process among the Member States. Following these consultations, the ESMA published on the 3rd of April 2020 its final guidance on Performance Fees which is applicable to UCITS and certain types of AIFs (marketed to retail investors).

On 5 November 2020, ESMA issued the official translations of its guidelines on performance fees in UCITS and specific AIFs, which then became applicable on the 6th of January 2021.

PwC's Academy is pleased to offer a training workshop dedicated to:

• understanding the principles of the performance fees calculation and the new regulatory framework, and to
• providing some considerations impacting the main actors before introducing a performance fee.

This training will also highlight the different issues linked to performance fees, give some insights on best practices. It offers the opportunity to go through practical application using real life exercises.

Objectives

By the end of this course, participants will be able to:

• Distinguish and understand the different methods of performance fees calculation;
• Assess the advantages and disadvantages of each calculation method;
• Identify the potential issues and monitor the risks linked to the introduction of performance fees;
• Perform validation checks on performance fees calculation;
• Become familiar with the performance fees key elements: High watermark, crystallization, Hurdle rate,...;
• Understand the new ESMA Guidelines on Performance Fees, translated into the Luxembourgish regulatory framework through the CSSF Circular 20/764.

• Market practice in Luxembourg for UCITS funds
• Basic principles of performance fees calculation and their pros and cons
• Classic methods: NAV/share, Total NAV
• Series of shares method
• Equalization method (equalization credit/debit, depreciation deposit, etc.)
• Practical exercises (analysis of the performance fees calculation method described in the prospectus, review and improvement of calculation files, review of the consistency between the prospectus and the calculation file, calculation of equalization credit/debit, etc.)
• Key elements introduced by the ESMA Guidelines on Performance Fees (Performance reference period, rolling basis reset, crstallisation period, etc.)