New ESMA Guidelines on performance fees in UCITS and certain types of AIFs

On 3 April 2020, ESMA finally issued its long-awaited guidelines on performance fees in UCITS and certain types of AIFs (the “Guidelines”). If adopted by the CSSF, certain provisions in the Guidelines will require managers to review and adapt their performance fee models in order to comply with these new rules. Prospectuses and KIIDs/KIDs will also need to be reviewed and amended in order to implement the transparency requirements introduced by the Guidelines.


The Guidelines are applicable to all UCITS and have been extended to AIFMs which market AIFs to retail investors in accordance with Article 43 of the AIFMD, with the exception of (a) closed-ended AIFs and (b) open-ended AIFs that are EuVECAs (or other types of venture capital AIFs), EuSEFs, private equity AIFs or real estate AIFs.

The main provisions of the Guidelines are as follows:

  • A set of minimum elements, as listed in the Guidelines, must be included in the performance fee calculation methodology.
  • The consistency of the performance fee model with the fund’s investment objectives, strategy and policy is to be checked against the parameters provided in the Guidelines.
  • The maximum performance fee crystallisation frequency is 12 months, subject to certain exemptions.
  • A positive performance must have been accrued during the performance reference period for performance fees to be payable. For performance fee models based on a benchmark index, a performance fee could be payable where the fund has overperformed the reference benchmark but had a negative performance (if a prominent warning was provided to investors).
  • A performance reference period of at least 5 years is required for performance fee models based on a benchmark index, or for high water mark models with a performance reference period shorter than the life of the fund.
  • 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 in the annual and half-yearly reports on an ex-post basis.

The aim of the Guidelines is to ensure supervisory convergence regarding performance fee structures and to set out the circumstances in which performance fees can be paid. They were issued following the Consultation Paper published by ESMA on 16 July 2019 on the proposed draft guidelines, which closed on 31 October 2019.

The Guidelines will apply as from two months following the date of their publication on ESMA’s website in all EU official languages. Competent authorities will then have two months to notify ESMA as to whether they (i) comply with the Guidelines, (ii) do not comply, but intend to do so, or (iii) do not comply and do not intend to comply with the Guidelines (and the reasons for the non-compliance).

New funds created after the date of application of the Guidelines, or existing funds which introduce a performance fee for the first time after such date should comply with the Guidelines immediately.
Funds with a performance fee existing prior to the Guidelines’ application date should comply with them by the beginning of the financial year, following 6 months from the application date of the Guidelines (thus giving these managers a reasonable timeline for compliance).

To see the ESMA Guidelines in UCITS and certain types of AIFs, please click here.


Michèle Eisenhuth


Investment Management

Fiona de Watazzi


Investment Management


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