The new fee rules for Ucits funds distributed in Germany require a minimum of 12 months for the crystalisation frequency, a five-year minimum period for any High Water Mark (HWM) or clawback mechanism, and caps on the size of any performance fees being charged to the fund.
According to Fitz Partners’ latest Performance Fee Benchmarking report, a number of cross-border funds have made changes to their performance fee structures in order to align their models to the regulator’s proposals, but not all.
About 13% of Fitz’s sample of Ucits funds would comply with the simultaneous conditions that a performance fee structure should have an annual crystallisation period, a HWM or a clawback running over 5 years and a cap on the total performance fee paid, the consultancy said.
Hugues Gillibert, chief executive officer of Fitz Partners, said: “BaFin’s more restrictive requirements do not seem to be followed by many cross-border funds, with Ireland-domiciled Ucits coming on top with 30% performance fee structures passing the BaFin tests when only 10% of Luxembourg funds with a performance fee would technically be allowed for distribution in Germany from next January.”
“Different local regulations may introduce new barriers to entry to local markets and uneven treatment of investors across Europe.”
Irish more successful
Separately, the report found a move by the Central Bank of Ireland (CBI) to reinforce its guidelines regarding performance fee structures, which requires Ucits funds to introduce either permanent High Water Marks (HWM) or permanent clawbacks, has had more success.
Out of all the Ucits fund performance fee structures analysed by Fitz, 50% satisfied the CBI’s guidance, although a huge 98% of Irish-domiciled funds would be compliant with the CBI’s requirements.
The CBI is currently consulting on a proposal to introduce compulsory annual crystallisation period
“Local regulators across Europe are certainly entitled to have different views when it comes to performance fee structures, but the creation of different technical local regulations such as these may introduce new barriers to entry to local markets, and more importantly a questionable uneven treatment of investors across Europe,” Gillibert said.