On 3 April 2020, ESMA published its guidelines on performance fees in investment funds, which will be applicable to both UCITS and certain types of AIFs. The guidelines will be translated into the official EU languages. They will become applicable two months after the publication of the translations on ESMA’s website.
According to ESMA’s press release, the guidelines shall provide comprehensive guidance to fund managers when designing performance fee models for the funds they manage, including the assessment of the consistency between the performance fee model and the fund’s investment objective, policy and strategy, particularly when the fund is managed in reference to a benchmark. ESMA’s guidelines aim at harmonising the way fund managers charge performance fees to retail investors, as well as the circumstances in which performance fees can be paid.
Currently there are different practices across the national competent authorities regarding performance fee structures as well as on the circumstances in which performance fees can be paid. This creates risks of regulatory arbitrage and inconsistent levels of investor protection. The common requirements will allow convergence in how national competent authorities supervise performance fees models and disclosure across the European Union.
The guidelines are applicable to UCITS as well as some types of open-ended AIFs marketed to retail investors, in order to ensure a level playing field and a consistent level of protection to retail investors.