Ireland: Esma Guidelines On Ucits Performance Fees Consultation

On 16 July 2019, ESMA launched a public consultation on draft guidelines for performance fees in undertakings for UCITS ("Guidelines"). ESMA also asks whether the Guidelines should also apply to alternative investment funds marketed to retail investors. ESMA invites feedback by 31 October 2019.

The Guidelines aim to harmonise across the EU the way in which performance fees can be charged to UCITS while ensuring common standards of disclosure by setting out five key elements to promote supervisory convergence in the following areas:

• General principles on performance fee calculation methods;

• Consistency between the performance model and the fund's investment objectives, strategy and policy;

• Performance fee crystallisation frequency;

• Circumstances where a performance fee should be payable; and

• Disclosure of performance fee model.


One of the key priorities included in ESMA's 2019 Supervisory Convergence Work Programme was to enhance supervisory convergence on performance fee structures and the circumstances in which they are paid.

In developing the Guidelines, ESMA was guided by its 2018 mapping exercise with national competent authorities, which identified that current practices on performance fees vary among EU Member States creating regulatory arbitrage risks and inconsistent investor protection levels. Considering the importance of UCITS cross border distribution, supervisory convergence on this issue is essential to ensure a level playing field in the EU. ESMA also reviewed IOSCO's good practice for fees and expenses of collective investment schemes – FR09/16 August 2016 that are considered best practice.

The Guidelines are preceded by the Central Bank of Ireland 's ("CBI") thematic review of the application of performance fees in Irish Irish UCITS and subsequent letter to industry in September 2018, and the codification of performance fee guidance in the Central Bank UCITS Regulations 20191 ("Regulations") in May 2019 (which contain transitional provisions for existing UCITS to comply with the requirements by 27 November 2020 or such later date as the CBI may specify).


The Guidelines relate to provisions in the UCITS framework (a comprehensive list of which is set out at Annex II of the Guidelines). They apply to UCITS management companies as defined under Article 2(1)(b) of the UCITS Directive and national competent authorities. They also apply to self-managed investment companies (i.e. UCITS which have not designated a separate management company authorised under the UCITS Directive).

The Guidelines would be without prejudice to ESMA's Guidelines on sound remuneration policies under the UCITS Directive2.

Proposed Guidelines

Guideline 1

The performance fee calculation method should include, at least, the following:

• A reference indicator;

• A crystallisation period and crystallisation date;

• A performance reference period;

• A performance fee rate;

• A performance fee methodology; and

• A computation frequency.

The performance fee calculation method should ensure that performance fees are always proportionate to the actual investment performance of the fund.

Current CBI requirement:

Guideline 1 is similar to current prospectus disclosure requirements in the Regulations. A gap analysis by in scope entities should be straightforward.

Guideline 2

There should be consistency between the performance fee model and the fund's investment objectives, strategy and policy.

For funds that calculate the performance fee with reference to a benchmark, the benchmark should be appropriate in the context of the fund's investment policy and strategy and adequately represents the fund's risk/reward profile.

Current CBI requirement:

This seems largely in line with the Regulations and a gap analysis with the Regulations should be straightforward.

Guideline 3

The minimum crystallisation period should be linked to the recommended holding period of the fund and the performance fee should ideally be charged to each investor when exiting the fund.

The frequency for the crystallisation of the performance fee should be defined to ensure alignment of interests between the portfolio manager and shareholders and fair treatment among investors.

Performance should be assessed and remunerated on a time horizon that is, as far as possible, consistent with the investor's holding period.

The crystallisation period should not be shorter than one year, and generally, it should end either on 31 December or at the end of the financial year of the fund.

Current CBI requirement:

The proposed one year crystallisation period aligns with the Regulations which require that the calculation of the performance fee does not crystallise more than once a year and performance is not paid more than once a year. Further consideration of the broader principles may be required to consider consistent application of the proposed rules.

Guideline 4

A performance fee should only be payable in circumstances where positive performance has been accrued during the performance reference period.

Any loss incurred must be recovered before a performance fee becomes payable.

Where a fund uses a high-water mark ("HWM") model, it should only be reset where during the performance reference period (i) the new HWM exceeds the last HWM; or (ii) the fund has undergone significant structural changes. On resetting the HWM, ESMA requests views on how the performance reference period should be defined (e.g. should it be based on the whole life of the fund, the recommended holding period of the investor or the investment horizon set out in the prospectus).

The performance reference period should not apply to the fulcrum fee model, as in this model the level of the performance fee increases and decreases proportionately with the investment performance of the fund.

Current CBI requirement:

This appears reasonable and aligns with the Regulations which mandate that performance fees are payable only on achieving a new high net asset value over the life of the UCITS and on the basis of out-performance of an index. A gap analysis against the Regulations should be straight forward.

Guideline 5

Investors should be adequately informed about the existence of performance fees and about their potential impact on the investment return.

The disclosure in the prospectus, KIID and marketing materials should include specific reference to parameters and the date when the performance fee is paid.

The KIID should set out all the information necessary to explain the existence of the performance fee, the basis on which it is charged and when it applies.

The annual and half yearly reports should clearly display (i) the actual amount of performance fees charged: and (ii) the percentage of the fees based on the share class net asset value.

Current CBI requirement:

This broadly aligns with the Regulations and the gap analysis with the current disclosure requirements in the Regulations should be straight forward.

Transitional Provisions

Any new UCITS created after the date of application of the Guidelines that includes a performance fee, or any existing UCITS at that date that introduces a performance fee for the first time after that date, should comply with the Guidelines immediately.

Existing UCITS operating a performance fee before the application date of the Guidelines should align their procedures with the Guidelines within 12 months of the application date of the Guidelines.

Next Steps

The deadline for responses to this consultation is 31 October 2019. ESMA will consider the feedback in Quarter 4 2019 with a view to publishing final guidelines, together with a report with a feedback summary, possibly in Quarter 1 2020. Next, the final guidelines have to be translated into all EU official languages and then most likely will enter into force within two months of the date of the publication of those translations on ESMA's website. From that date, existing UCITS would have one year to adapt their performance fee models to comply. Under this projected timeline, this should not be sooner than Quarter 1 2021.

While the Guidelines appear broadly consistent with the Central Bank's requirements, a detailed gap analysis between the final guidelines and the Central Bank's requirements would need to be carried out to ascertain if there are any updates required to the fund's documentation. Further, the Guidelines may require an update to the Regulations in due course.


1 ESMA/2016/575

2 S.I. No. 230 of 2019 Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions