ESMA publishes performance fee Guidelines for UCITS and certain AIFs

What's new?

ESMA's Guidelines were formally published on its website on 5 November 2020. As Guidelines take effect two months after publication, this means that they will start to apply from 5 January 2021.

Will this affect me?

The Guidelines aim to harmonise how and when fund managers charge performance fees to retail investors.

They apply to managers:

• of UCITS; and
• of AIFs marketed to retail investors (with some exceptions such as closed-ended AIFs and open-ended EuVECAs or EuSEFs).

When will the Guidelines apply to me?

This will depend.

• If your fund is created after 5 January 2021 and uses a performance fee, the Guidelines will apply to it immediately.
• If your fund was in existence as at 5 January 2021 and uses a performance fee, the Guidelines apply by the beginning of the financial year following 5 July 2021.
• If the fund was already in existence as at 5 January 2021 and subsequently introduces a performance fee, the Guidelines will then apply immediately.

What do the Guidelines cover?

The Guidelines are set out under five headings:

1. Performance fee calculation method;
2. Consistency between the performance fee model and the fund's investment objectives, strategy and policy;
3. Frequency for the crystallisation of the performance fee;
4. Negative performance (loss) recovery;
5. Disclosure of the performance fee model.

For a detailed summary of the Guidelines, please see our note on ESMA's Final Report.

(The Final Report was subsequently translated and became the formal Guidelines.)