Performance fees: calculation techniques and market practices

• Fund service providers (from fund accounting, risk management, regulatory departments, CRM (Client Relationship Management), etc.)
• Fund promoters

Over the past years, performance fees have gained traction among UCITS managers. Unlike other elements pertaining to the UCITS environment, performance fees have historically been 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, the ESMA issued the official translation of these guidelines applicable as from 6 January 2021.

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

• understanding the principles of the performance fee 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 training, participants will be able to:

• distinguish and understand the different methods of performance fee 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 fee calculation;
• become familiar with the performance fees key elements: high watermark, crystallisation, hurdle rate etc.;
• 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 or 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 at PwC Luxembourg.

Frédéric Botteman is a partner and qualified réviseur d’entreprises in Luxembourg, currently auditing traditional, private debt, and private equity funds for major clients such as BNP Paribas Assets Management, Amundi, Nomura, BNP Paribas Securities Services, and CACEIS. He specialises in the valuation of derivatives and illiquid securities, the treatment of procedures under circular CSSF 24/856, and performance fees. With extensive experience in expert technical groups focused on asset management specifics like derivatives and swing pricing, he also serves as an instructor for related courses. Frédéric holds a degree from the University of Liège and is an active member of the Institut des Réviseurs d’Entreprises.