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 3 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, the ESMA issued the official translation of these guidelines guidelines applicable as from the 6 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;
• 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 and offer the opportunity to go through practical application using real life exercises.
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, crystallisation, 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
• Equalisation method (equalisation 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 equalisation credit/debit, etc.)
• Key elements introduced by the ESMA guidelines on performance fees (performance reference period, rolling basis reset, crystallisation period, etc.)

An attendance certificate will be sent to participants.

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.