On October 31, MFA and AIMA submitted a joint letter in response to ESMA’s consultation paper on guidelines for performance fees in UCITS. The letter explains that the overarching goal of performance fee guidelines should be appropriate transparency to promote investor decision-making rather than prescribing particular performance fee arrangements. The letter recommends increased flexibility for performance fee arrangements so that funds are able to meet the different investment objectives of investors. Among the specific points made in the letter are the following:
- multiple types of performance fee calculation methodologies, including relative performance fees, should be acceptable if they are properly disclosed to investors;
- flexibility in choosing a benchmark, or indeed having no benchmark, could still be in the best interest of investors and overly prescriptive guidelines may be detrimental for investors;
- the guidelines should not be extended to apply to performance fees in AIFs which are a different regulatory regime; and
- there should be flexibility for more frequent crystallization than annual, e.g., if it is in the interest of investors or for technical reasons.