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Central Bank of Ireland Review of UCITS Performance Fees

AUTHOR(S): Tara Doyle, Shay Lydon, Oisin McClenaghan, Donal O’Byrne, Michael Jackson, Liam Collins, Michelle Ridge, Dualta Counihan, Philip Lovegrove, Barry O’Connor, Anne-Marie Bohan, Elizabeth Grace
PRACTICE AREA GROUP: Asset Management and Investment Funds
DATE: 05.09.2018

The Central Bank of Ireland (“Central Bank”) has requested all fund management companies which manage UCITS that charge performance fees to conduct a review of their existing methodologies by 30 November 2018.

On 4 September 2018, the Central Bank published an industry letter setting out its findings following a thematic review of UCITS performance fees.  The review investigated the methodologies and parameters selected and applied in the calculation of UCITS performance fees to examine if they are in line with the Central Bank’s UCITS Performance Fees Guidance (“Guidance”).

The Central Bank has requested fund management companies that manage UCITS that charge performance fees to carry out a review of their existing methodologies in order to be satisfied that the performance fees charged comply with the Guidance, including incorporating the findings of the Central Bank review.  The chairman of the management company board should provide written confirmation that the review has taken place to the Central Bank by email to by 30 November 2018.  The confirmation should note:

  • whether the review identified:
    • any required changes to existing methodologies;
    • any required changes to prospectus disclosures;
    • any instances of improper payment of performance fee;


  • the actions that are being taken to remedy the issues identified.

The thematic review considered a sample of approximately 30% of the 350 UCITS that accrued performance fees in 2017 and found instances of non-compliance with the Guidance in circa 10% of the sample of UCITS sub-funds.  The industry letter sets out a number of findings that the management company should be cognisant of in carrying out its review.  These findings include instances of:

  • performance fees being calculated on the basis of gross asset value as opposed to net asset value;
  • UCITS calculating performance fees based on outperforming an index or benchmark which did not appear to be relevant in the context of the UCITS policy;
  • inadequate disclosure practices where performance fees are paid on the basis of the “High Water Mark approach”;
  • failure to use the initial offer price as the starting price for calculations where performance fees were calculated on the basis of the High Water Mark approach;
  • underperformance of an index in preceding periods being clawed back for a specified period only, possibly to the disadvantage of investors; and
  • inadequate disclosure practices where performance fees are based on outperformance of an index (lack of clarity as to which version of the index was being used).

The Central Bank also sets out poor practices observed at fund administrators and depositories and requires management company boards to review the calculation procedures adopted by administrators and the verification procedures adopted by depositaries.

The Central Bank will commence supervisory engagement with the individual UCITS that were subject to the review, where specific supervisory issues were identified.  The Central Bank will also engage with the depositaries and administrators of those UCITS.

The Central Bank is currently considering feedback received on its consultation on amendments to the Central Bank UCITS Regulations (CP119), which would convert the Guidance to binding statutory obligations and would introduce some new requirements.  One such new requirement would oblige funds to charge performance fees no more frequently than once a year.

The Central Bank’s industry letter dated 4 September 2018 may be accessed here.

The Central Bank’s UCITS Performance Fees Guidance may be accessed here.

Please get in touch with your usual Asset Management and Investment Funds Department contact or any of the contacts listed in this publication should you require further information in relation to the material referred to in this update.

Full details of the Asset Management and Investment Funds Department, together with further updates, articles and briefing notes written by members of the Asset Management and Investment Funds team, can be accessed at


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