Performance fees

The choice of calculation model is critical. The “incentive fee” model must enable the investors and the portfolio manager to align their interests.

Dozens of different performance fee calculation models are currently in use in the investment funds & hedge funds industry. This diversity may lead to several concerns for the stakeholders.

Indeed, the performance fee has to be a right incentive for the investment manager, while being fair to investors, without adding excessive operational risks to the fund administrator. Therefore, the chosen model will have to be in line with best market practices.

Once the model picked up, the calculation itself will have to be set-up, either using a calculation spreadsheet or an automated software linked to the accounting system.

Performance fees calculation errors can impact significantly NAV calculated. These errors can potentially lead to a compensation payment to the investors or a loss to the portfolio manager. Operational risk must be mitigated with appropriate monitoring.

Consequently, the ability to control the performance fee calculated is a crucial requirement during the set-up phase, large market variation or prior to performance fee payments. 

Performance fees services

Set-up

• Setting-up an Excel simulation spreadsheet
• Prospectus wording
• Library of multiple calculation models (HWM, Benchmark, Time Weighted Rate of Return, Money Weighted Rate of Return, Carried Interests, Series of Shares, Equalisation, Claw Back,…)
• Calculation model customisation

Methodology review

• Prospectus review
• Control of the compliance between the calculation file and the prospectus
• Stress testing
• Review of internal controls, process improvement in order to limit the risk of error

Recurrent control

•  Frequent control of the calculation prior to payment (i.e. quarterly)

Equalisation method

• Assistance in implementation, testing, parallel run
• Review of calculation of Equalisation debits and credits

Training

• Calculation methods
• Best market practices
• Procedures and control
• Impact of extraordinary events (merger, benchmark change, hedged share class, …)
• Equalisation
• Practical cases

Hotline

• Prospectus interpretation
• Assistance with Excel formulas
• Assistance in case of extraordinary events (merger, benchmark change, …)