ESMA has published guidance on performance fees in investment funds, applicable to UCITS and AIFs that are open-ended (but not EuVECAs). The guidelines are designed to harmonise the way fund managers charge performance fees to retail investors. The key elements of the guidance are:
- calculations should be verifiable and not open to manipulation, and should include specific elements such as reference indicators and period, and crystallisation date for the fee;
- performance fees should always be proportionate to the actual investment performance of the fund;
- managers should be able to show how the model is a reasonable incentive for the manager and is aligned with investors’ interests; and
- performance fee provisions and their final payments should be allocated and reversed in a symmetrical way.