3.38.4 Modify Performance Fee Calculation Method

This topic provides information on modifying performance fee calculation method details.

If you wish to change the performance fee calculation method for a given fund, you need to perform the steps given below. Two scenarios are explained based on the crystallization of the performance fee.

Case 1:

In this scenario, the crystallization of the performance fee is not required using existing performance fee method.

  1. Create a new group ID that represents the new performance fee calculation method.
  2. Amend the fund rule to replace the old Group ID with the new Group ID.
  3. On BOD of new rule effective date, the system updates the fund rule with newly mapped group and starts accruing and applying performance fee based on this new method.

Example:

Assume that the existing Fund Rule setup is as given below:

  • Fund ID: HFUND1
  • Rule Effective Date: 01-Jan-2009
  • Group ID: 8001 (Represents EC/CL methodology)
  • Last Payment Date : 31-Dec-2008
  • Next Payment Date : 31-Dec-2009
  • Application Date: 15-Jan-2009

Above setup indicates that the fund HFUND1 uses EC/CL methodology for calculating performance fee. If you want to change the PF calculation method for the fund from EC/CL to FR (e.g. Group ID 8002) from 01-May-2009 onwards and period end processing is not required, then you need to perform the steps given below.

  1. Amend the fund HFUND1; change the Group ID to 8002 which represent FR calculation methodology and specify the new Rule Effective Date for the fund as 01-May-2009.
  2. On BOD of 01-May-2009, system will update group Id for fund HFUND1 as 8002.
  3. From 01-May onwards, the system starts applying performance fee based on FR methodology.
  4. On 31-Dec, system executes the period end calculation based on FR methodology.

Case 2:

In this scenario, the performance fee needs to be crystallized using existing performance fee method.

  1. Create a new group ID that represents the new performance fee calculation method.
  2. Amend the fund rule and update Next Payment Date, so that the system performs period end calculations as per the existing Group.
  3. On BOD of new rule effective date, the system updates the Next Payment Date.
  4. Before EOD of Next Payment Date, amend the fund rule to map with the new Group ID and specify the next payment date and next accrual date.
  5. On EOD, the system performs period end processing as per the existing Group ID.
  6. On BOD of New Rule Effective Date, the system updates the Group ID with the new Group ID.
  7. From this date onwards the system calculates performance fee based on the new Group ID.

Example

Assume that the existing Fund Rule setup is as given below:

  • Fund ID: HFUND1
  • Rule Effective Date: 01-Jan-2009
  • Group ID: 8001 (Represents EC/CL methodology)
  • Last Payment Date : 31-Dec-2008
  • Next Payment Date : 31-Dec-2009
  • Application Date: 15-Jan-2009

The above Fund Rule setup indicates that the fund HFUND1 is using EC/CL methodology for calculating performance fee. If you want to change the PF calculation method for the fund from EC/CL to FR (e.g. Group ID 8002) from 01-May-2009 onwards and want the system to process period end calculation using existing method (8001) then, hen you need to perform the steps given below.

  1. Amend the fund HFUND1; specify the new Rule Effective Date for the fund as 16-Jan-2009 and change the Next Payment date to 30-Apr-2009 which represents next period end date. (Next Payment Date should be grater then new Rule Effective Date)
  2. On BOD of 16-Jan-2009, the system updates Next Payment Date as 30-Apr-2009 for fund HFUND1.
  3. Before EOD of 30-Apr-2009, amend the fund HFUND1 and specify the new Rule Effective Date for the fund as 01-May-2009; Change the Group ID to 8002 and Next Payment date to 31-Dec-2009 for new group (8002).
  4. On EOD of 30-Apr-2009, the system executes the period end calculation based on Group 8001 (EC/CL methodology).
  5. On BOD of 01-May-2009, the system updates group Id to 8002 (FR methodology) and Next Payment Date to 31-Dec-2009 for fund HFUND1.
  6. From 01-May -2009 onwards, the system starts applying performance fee calculations based on Group Id 8002 (FR methodology).

Parent topic: Performance Fee for Hedge Funds