On 22 September 2021, the Commission de Surveillance du Secteur Financier (“CSSF”) published (the “Communication”) on its website inviting investment fund managers (“IFMs”) to proceed with a declaration regarding performance fees (the “Declaration”). The Communication has been issued in the context of CSSF Circular 20/764 (the “Circular”) which integrated into the CSSF administrative practices and regulatory approach the content of the ESMA Guidelines on Performance Fees in UCITS and certain types of AIFs (the “Guidelines”), which apply since 6 January 2021. More information about the ESMA Guidelines can be found in our previous Newsletter.
The purpose of the Declaration
As per the Communication, the aim of the Declaration is to enable the CSSF to ensure that proper disclosures are made in compliance with the Guidelines. Under the Guidelines and the Circular, IFMs must ensure that adequate information about the existence of a performance fee and its potential impact on investment returns are provided to investors. They shall also clearly set out in the prospectus/issuing document (“prospectus”) of the fund they manage all information necessary to enable investors to understand properly the performance fee model and the computation methodology. In this context the prospectus shall include:
- The description of the performance fee calculation;
- Concrete examples of how the performance fee is calculated; and
- The main elements, as listed in Guideline 1 of the Guidelines, of the performance fee.
The Declaration also aims to enable the CSSF to collect standardised key information in relation to performance fees.
IFMs and funds covered by the Declaration
The Communication clarifies that IFMs managing Luxembourg based UCITS or AIFs are requested to proceed with the Declaration, even if the fund that is managed does not apply a performance fee. According to the Guidelines, the Circular and further clarifications provided by ESMA in its Questions and Answers on the Application of the AIFM Directive, the Guidelines apply to (i) all UCITS managers (ii) the UCITS directly in case it has not appointed a management company and (iii) AIFMs managing AIFs marketed to retails investors. Registered AIFMs and AIFMs managing the following types of AIFs are however out of the scope of the Guidelines, and therefore should not be caught by the obligation to proceed with the Declaration:
- Closed-ended AIFs;
- Open-ended AIFs that are EUVECA (or other types of venture capital AIFs), EuSEF, private equity AIFs and real estate AIFs; and
- ELTIFs provided that they are not marketed to retail investors, have a closed-ended structure and are venture/private equity capital or real-estate AIF.
Funds and/or sub-funds that do not apply a performance fee will have to be declared as such. Funds or sub-funds that have not yet launched since their approval or became inactive following full redemptions of their shares and then await for re-activation are also covered by the Declaration and shall thus be declared.
Form and timing of the Declaration
The Declaration will take the form of a questionnaire to be filled out by IFMs via a new eDesk module on Performance Fees (the “Module”) that will be launched from 30 September 2021. The list of funds and sub-funds concerned by the Declaration and the data collection will be available on the Module. As part of the Declaration, IFMs will also have to provide a declaration of compliance with the Guidelines.
The Module will be accessible according to the following timing:
- For funds whose financial year ends between July 2021 and December 2021: as from 30 September 2021; and
- For funds whose financial year ends between September 2022 and June 2022: as from January 2022.
The Declaration shall be completed, at the latest, on the corresponding closing date of each fund as this will be specified in the IFM corresponding performance fee eDesk dashboard, except for funds whose financial year ends between July 2021 and September 2021 to which the Guidelines already apply, which will have to proceed with the Declaration by 30 November 2021.
The Communication also indicates that a dedicated eDesk user guide will be available in eDesk to provide assistance to complete the questionnaire.
Update of the Declaration
The Declaration shall be kept up to date and IFMs are responsible to ensure compliance with this obligation.
The Declaration will have to be updated in cases of changes impacting the performance fee after the initial Declaration. Examples of types of changes requiring an update of the Declaration have been provided in the Communication, and will include:
- The introduction of the performance fee model for the first time; or
- Changes in the performance fee model.
The updated Declaration will have to be sent electronically to the CSSF via an “update” function on the Module that is to be created shortly, in parallel of the transmission of the revised prospectus reflecting those changes.