knowledge | 22 April 2021 |
Central Bank of Ireland Publishes Guidance on Fund Performance Fees
Earlier this month, the Central Bank of Ireland (“CBI”) published new guidance, Performance fees of UCITS and certain types of Retail Investor AIFs (the “CBI Guidance”). This briefing sets out a number of Q&A relating to the new CBI Guidance.
What is the purpose of the CBI Guidance?
The CBI has published requirements for performance fees for many years. In the context of UCITS, these are reflected in the CBI UCITS Regulations 20191 and in relation to retail AIFs, the AIF Rulebook.
The purpose of the CBI Guidance is to incorporate aspects of ESMA’s Guidelines on performance fees for certain types of authorised funds, which have applied since 5 January 2021, into the existing domestic framework. The CBI published a consultation on the proposed CBI Guidance in December 2020 (“CP134”). The CBI Guidance will therefore apply, in addition to the requirements for performance fees that are already set out in the CBI UCITS Regulations 2019 and the AIF Rulebook.
Does the CBI Guidance apply to all types of funds?
No. The CBI Guidance only applies to UCITS and to some Retail Investor AIFs (“in-scope funds”). It does not apply to QIAIFs, nor does it apply to Retail Investor AIFs that are closed-ended and open-ended Retail Investor AIFs that have been established as EuVECA, EuSEF or follow venture capital, private equity or real estate strategies.
At what level does the CBI Guidance apply?
The Guidance applies at fund level.
What does the CBI Guidance cover?
The CBI Guidance sets out requirements in relation to:
- Performance fee calculation method;
- Consistency between performance fee model and the in-scope fund’s investment objectives, strategy and policy;
- Frequency for the crystallisation of the performance fee;
- Negative performance (loss) recovery; and
- Disclosure of the performance fee model.
What elements of the ESMA Guidance are not covered in the CBI Guidance?
As set out in CP134, Regulations 40 and 74 of the CBI UCITS Regulations mean that it is not currently possible to provide for certain aspects of the ESMA Guidance in the CBI Guidance, including:
- the possibility of a performance reference period of less than the life of a fund;
- crystallisation of performance fees more frequently than annually, for HWM models with a performance reference period of the life of the fund; or
- fulcrum fees.
When does an in-scope fund need to do to comply with the CBI Guidance?
The compliance timeline for the CBI Guidance varies depending on whether or not the relevant performance fee existed on 5 January 2021.
An in-scope fund which is established, or which amends or introduces a performance fee, on or after 5 January, must apply the CBI Guidance from the date of establishment, amendment or introduction.
An in-scope fund with an existing performance fee on 5 January must comply with the CBI Guidance from the beginning of the accounting period which occurs six months after the Effective Date (5 July 2021). A new class within such a fund is subject to this same timeline. For example, a fund with an accounting period ending on:
- 30 September 2021, must comply from 1 October 2021;
- 31 December 2021 must comply for the period from 1 January 2022.
Who is responsible for complying with the CBI Guidance?
In the case of a UCITS, the Responsible Person of the UCITS (as defined in the CBI UCITS Regulations 2019) must ensure compliance with the CBI Guidance. Where the CBI Guidance is being applied in the context of a Retail Investor AIF, responsibility rests with the Retail Investor AIF.
Where can I find further information?
- Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1) (Undertakings for Collective Investment in Transferable Securities) Regulations 2019
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.