The Final Report and Guidelines on performance fees in UCITS and certain types of AIFs was published by ESMA on April 3, 2020 : www.esma.europa.eu

Goals and scope:

These Guidelines  are intended to harmonise how and when fund managers charge performance fees to retail investors and apply to managers of UCITS and of AIFs -marketed to retail investors- (with some exceptions such as closed-ended AIFs and open-ended AIFs that are EuVECAs or EuSEFs).

Adoption of the Guidelines:

Competent authorities shall incorporate them into their national legal and/or supervisory frameworks to ensure consistent, efficient and effective supervisory practices across the EU. It is a comply-or-explain process for competent authorities, should they intend not to or only partially comply.

The Guidelines will apply two months after the date of their publication on ESMA’s website in all EU official languages.

Managers of funds created after the date of application of the Guidelines or funds existing before the date of application that introduce a performance fee after that date, should immediately comply with the Guidelines .

Managers of funds with existing performance fees should apply the Guidelines from the beginning of the financial year following a six-month period beginning on the date of the application of the Guidelines .

Guidelines key provisions:

The Guidelines address the following topics:

  • performance fee calculation method,
  • consistency between the performance fee model and the 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.


The key provisions of these Guidelines are as follows:

  • A set of minimum elements, listed in the Guidelines, must be included in the performance fee calculation method.
  • The consistency of the performance fee model with the fund’s investment objectives, strategy and policy is to be reviewed periodically.
  • The crystallisation frequency should not be more than once a year.
  • A performance fee should only be payable in circumstances where positive performance has been accrued during the performance reference period. Any underperformance or loss previously incurred during the performance reference period should be recovered before a performance fee becomes payable. In order to avoid misalignment of interests between the fund manager and the investors, a performance fee could also be payable in case the fund has outperformed the reference benchmark but had a negative performance, as long as a prominent warning to the investor is provided in the KIID.
  • The manager’s performance should be assessed and remunerated on a time horizon that is, as far as possible, consistent with the recommended investors’ holding period.
  • In case the fund employs a performance fee model based on a benchmark index, it should be ensured that any underperformance of the fund compared to the benchmark is clawed back before any performance fee becomes payable. To this purpose, the length of the performance reference period, if this is shorter than the whole life of the fund, should be set equal to at least 5 years.
  • Where a fund utilises a HWM model, a performance fee should be payable only where, during the performance reference period, the new HWM exceeds the last HWM. The starting point to be considered in the calculations should be the initial offering price per share. For the HWM model, in case the performance reference period is shorter than the whole life of the fund, the performance reference period should be set equal to at least five years on a rolling basis. In this case, performance fee may only be claimed if the outperformance exceeds any underperformances during the previous five years and performance fees should not crystallise more than once a year.
  • Where performance fees are calculated based on performance against a reference benchmark index, the KIID and the prospectus should display the name of the benchmark and show past performance against it.
  • Adequate ex-ante disclosures with respect to performance fee models are to be included in the prospectus and the key investor document, as well as on an ex-post basis in the annual and semi-annual reports and other ex-post information.


What should you consider?

Managers should :

  • carefully review the whole remuneration model of their funds,
  • assess whether their performance fee models are compliant or not with the Guidelines ,
  • ensure that their performance fee models are consistent with the fund’s investment objectives, strategy and policy especially with regard to the use of benchmarks,
  • potentially plan the review of their prospectus,
  • ensure that all required disclosures are / will be done in offering documents, periodic reports and any other ex-post information,
  • and ensure that performance fees are integrated in their product governance process.


EFA will keep you informed on the adoption process and dates of the Guidelines in Luxembourg.

In the meantime, our specialist are at your disposal for any question you might have in relation to these Guidelines.

More information? Please contact us : https://www.efa.eu/en/contact-us/luxembourg