EU Consultation on Performance Fees for Retail Funds

The European Securities and Markets Authority has launched a consultation on proposed guidelines on performance fees in Undertakings for Collective Investment in Transferable Securities. The consultation closes on October 31, 2019 and ESMA will publish its final guidelines once it has considered all of the feedback.

During 2018, ESMA conducted a survey on the implementation by Member States of the requirements on performance fees for managers of UCITS under the UCITS Directive and found that there are different performance fee structures and various approaches to when performance fees can be paid. As a result, ESMA is proposing guidelines to enhance the consistency of the approach taken across the EU.

ESMA is proposing common criteria on: (i) general principles on performance fee calculation methods; (ii) consistency between the performance fee model and the fund's investment objectives, strategy and policy; (iii) frequency for the crystallization of the performance fee; (iv) the circumstances in which a performance fee should be payable; and (v) disclosure of the performance fee model to ensure that investors are aware of any performance fee and the impact it could have on their return from the investment.

ESMA is also requesting feedback on whether the proposed guidelines should be applied where an Alternative Investment Fund is marketed to a retail client.

View the consultation paper.

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