Performance measurement

Challenges

In the context of increasing regulations for investments funds, the largely unregulated performance fee area crystallises the concerns of investors: the payoff to the manager is often compared to a free-option, incentivising him to take too much risk at the expense of investors. Nevertheless, performance fees tend to better align the interests of the manager with the interest of investors. In order to ensure a fair performance fee system, investment funds have to focus on best practices.

For now 10 years, Deloitte’s performance measurement team provides services in performance analysis, and controls the fairness and correctness of methodologies employed, from the performance fee area to the multiclass performance analysis and performance reporting area with its GIPS certification services.

Deloitte services offering

Deloitte provides companies with a broad range of services to respond to a fast and ever-changing environment:

Performance fees

Fairness Rating Centre
- Complete analysis of the fairness of the model, based on the detailed characteristics of the model as stated by the prospectus and implemented in the calculation:
  - Parameters of the model (HWM, performance fee rate, benchmark, hurdle rate, clawbacks)
  - Calculation method (return calculation method, adjustments for subscriptions / redemptions and dividends, crystallisation in case of redemption)
- Global rating of the model based on a detailed rating system, which offers the opportunity to investment funds to communicate objectively on the fairness of their performance fee calculation method
- Assistance in the definition of the performance fee model and its characteristics to provide a fair calculation model
Set-up: creation and assistance in the set-up
- Creation and/or assistance in calculation model selection and in the benchmark selection
- Review of the adequacy of the prospectus with the market practices and with the client’s objectives
- Proposition of prospectus definitions for performance fee calculation
- Creation and/or assistance in the set-up of an Excel simulation spreadsheet, with stress testing of performance fee calculation spreadsheet using defined and random scenarios
Methodology review of the performance fees calculation already used
- Control of the adequacy of the calculation with the prospectus
- Control of the correctness of the Excel spreadsheet formula
- Stress testing based on defined and/or randomly generated scenarios
Recurrent controls of the calculated performance fees before payment
Automated performance fees calculations through accounting systems and/or Excel calculation files:
- Control and review of the accounting systems performance fees modules
- Set-up assistance and testing of accounting systems performance fees modules
- Set-up assistance of fully automated calculation files (including input-output interfaces)
Training of staff on performance fee calculations

Multi-classes of shares

Review and assistance in the set-up of automated recurrent controls on the NAVs of multi-classes of share fund
Analysis of performance difference between share classes: explanation of difference’s sources
Review of the calculation method used by the accountability department.
Review of hedging shares class policy and accountancy, hedging impact analysis
Definition of hedging strategy

Performance analysis

Performance measurement and analysis: calculation of portfolio performance based on money-weighted, time-weighted rate of return, Modified Dietz calculation method, analysis of risk adjusted performance measures.
Performance attribution computation: analysis of allocation effect, selection effect, interaction effect on multi-currency portfolios based on a multi-period attribution calculation model.
Computation of market indicators and ratio’s (Sharpe, Sortino, Information Ratio, …)
GIPS certification and/or assistance in the GIPS certification process

Contacts

Xavier Zaegel
Advisory & Consulting Partner
Jean-Paul Frisot
Advisory & Consulting Senior Manager