The purpose of the Central Bank of Ireland’s (“Central Bank”) review of performance fees payable by Irish UCITS (undertakings for collective investment in transferable securities) was to determine if the calculation and payment of such performance fees resulted in investors interests being protected at all times. The letter issued by the Central Bank, following the conclusion of its review, confirms that the majority of the UCITS funds reviewed employed good practices. However, there is a concern that the UCITS Performance Fee Guidance (“Guidance”) issued by the Central Bank is not being applied in a consistent and comprehensive manner. We look at what issues the Central Bank identified and next steps.

Key issues

Fund management companies, including self-managed UCITS, must maintain effective oversight over their delegates. This obligation includes ensuring the calculation and verification of UCITS performance fees is in line with the Guidance.

The following are some of the key issues identified during the Central Bank’s review:

  • Performance fees calculated based on Gross Asset Value (“GAV”) as opposed to Net Asset Value (“NAV”)
  • Performance fees payable on the outperformance of an index with no relevance to the investment policy of the UCITS
  • Inadequate disclosure to investors that performance fees payable on achieving a new high net asset value (HWM Method) may be accrued on foot of market movements, instead of the performance of an investment manager
  • The initial offer price of a fund not being used as the starting point for the calculation of fees using the HWM method
  • The clawback of underperformance only occurring for specific periods, contrary to the Guidance;
  • Inadequate disclosure of the version of an index being used for the purposes of calculating a performance fee
  • Poor performance by administrators in respect of reconciliations of performance fees invoiced and independent validation of the methodology adopted to calculate the fees payable
  • Poor practices adopted by depositaries in verifying UCITS performance fees

Next steps

The Central Bank now requires fund management companies/self-managed UCITS that manage UCITS with performance fees to carry out a review of the methodologies used so as to ensure full compliance with the Guidance. Confirmation that such a review has taken place must be submitted to the Central Bank in writing by 30 November 2018. Any changes required to methodologies or disclosures must be highlighted, together with confirmation of the action being taken to rectify any issues (including improper payment of performance fees).


A review of UCITS performance fees by the Central Bank has been expected for some time. The protection of investors and ensuring they are fully informed of how they may be subject to performance fees must always be at the forefront of fund management companies/self-managed UCITS’ agenda.