Performance fee rate rises to 17 per cent in Europe as asset managers respond to new regulations

The average performance fee rate charged to funds in Europe has reached 17 per cent, according to new Performance Fee Benchmarking data released by Fitz Partners.

While this is only a slight increase from the 16 per cent figure in 2018, the fund research firm says the industry is seeing significant changes in the way these fees are calculated and paid.

Two performance fee elements at the centre of recent regulations introduced by the Central Bank of Ireland (CBI) and following a consultation by the European regulator ESMA, the presence of a High-Water-Mark (HWM) and annual crystallisation, have seen their implementations increased over the last few years. The proportion of funds using HWMs increased to 63 per cent, from 58 per cent in 2018, while the use of an annual crystallisation reached over 77 per cent, a 7 per cent increase from 2018. 

Hugues Gillibert, chief executive officer of Fitz Partners, says: “Although performance fees seem to have levelled off across Europe at 17 per cent overall, we are seeing substantial changes in the elements of the performance fee structures that are governing their workings and, in turn, their impact on costs to investors. The increased use of HWM and annual crystallisation, in part driven by stricter regulations, is a signal that many asset managers have felt a need to review and apply structural changes to their performance fees in the interest of investors. Our latest data demonstrates that performance fees are also becoming more conventional and, in some respects, more attractive following a change in what is expected from them by investors and a more regulated environment.”