AIF's performance fees: calculation techniques and market practices - Advanced

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 3 April 2020 its final guidance on performance fees which is applicable to UCITS and certain types of AIFs (marketed to retail investors).
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 3 April 2020 its final guidance on performance fees which is applicable to UCITS and certain types of AIFs (marketed to retail investors).

Objectives

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

• understand the key elements of the different calculation methods following the fund's investment strategy (high watermark, hurdle rate, index or combination);
• apply the new reset mechanism (implemented by the recent ESMA guidelines on performance fees) on each single calculation method;
• update the validation checks following the new calculation methodology;
• assess, based on the fund's characteristics, which method is the most suitable.

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 6 of January 2021.
PwC's Academy is pleased to offer a training dedicated to understanding the principles of the performance fees calculation and the new regulatory framework, as well as providing some considerations before introducing a performance fee. This training also highlights the different issues linked to performance fees, gives some insights on best practices and offers the opportunity to go through practical application using real life exercises.

• Market practice in Luxembourg for AIFs
• Examples of performance fees calculation and their pros and cons
• Classic methods: NAV/share, total NAV
• Series of shares method
• Equalisation method (equalisation credit/debit, depreciation deposit, etc.)
• Practical exercises on each calculation method (HWM, hurdle rate, index) and the way to introduce the reset of the key indicator at the end of the performance reference period
• Understanding and analysis of the most recent AIFs Q&As on performance fees section

This training will be coordinated by Frédéric Botteman, Partner, PwC Luxembourg. It will be animated by specialists of PwC Luxembourg working on performance fees issues on a daily basis.

Frédéric, Audit Partner, is specialised in the valuation of derivatives and illiquid securities. Thanks to this, he has gained a high expertise in the audit of guaranteed funds. Frédéric has developed a strong fund audit experience and is member of the experts' team in the area of circular CSSF 2002/77 requirements: he is instructor in several courses linked to this topic and to derivative instruments.

He is also leading several SRI reporting for major IM players.