Prior Period Estimated Budgeted Expense Performance Fee Workflow Example

This example describes the expected workflow of a performance fee that has a rule type of Prior Period Budgeted Estimated Expense. It shows a monthly prior period estimated performance fee.

Step 1. Set Up Performance Fee Rule

You set up a reference performance rule, including bounds, rates, min/max rate restrictions, and benchmark.

The performance fee rule uses the information shown in the following table. Notice that the performance fee requires approval prior to posting.

Step 2. Set Up Performance Fee

You create a fee rule to accrue an estimated budgeted expense for performance fees using the Create Performance Fee Expense panel. At the time of the fee rule setup, the return data is most likely not available. You create the fee rule in a pending status with a fee amount of 0. You also choose a Trueup Spreading Method of Monthly. This indicates that by default, the system adds a true-up rule in the following month (June) to adjust the amount posted in May. 

The performance fee expense uses the information shown in the following table. 

Step 3. Accrue Expenses

At start of day on May, you execute the Trigger Expense Accrual job using a scheduled event. You have not yet input the fund and benchmark return data into the accounting system. As a result, the system does not run the performance fee because it is still in Pending status.

Step 4. Input Returns for April 30

In the middle of the day on May 1, you input the April 30 return numbers into the accounting system using the event associated with the Create Performance and Benchmark Data panel.

Step 5. Calculate Performance Fee Activity

You run the Performance Fee Activity Calculation event associated with the Calculate Performance Fee Activity panel. The event calculates the data in the following table, including fee rates, average net assets, and the fee amount for May.

This information includes the NAV comparison results between the prior month and the prior year. In this case, the prior month had the lowest average net asset value.

Note that the final fee amount is different from prior period performance fees. The system calculated the April fee as $39,766.59. The estimated amount for May becomes ($39,766.59 / 30 days in April) * 31 days in May.

The system saves this data to the performance fee activity table and links it to the performance fee rule by fee id and fee row instance. The system also saves the fee amount to the performance fee estimate rule. The rule is still Pending.

Step 6 Approve Performance Fee

You run the Performance Fee Approval event using the Approve Performance Fee panel. The panel runs the Performance Fee Activity Calculation Query, returning the May fee rule and its associated calculation output data. You must then approve the rule by submitting the performance fee approval event, which changes the rule from Pending status to Active status. You also have the opportunity to change the performance fee rate and performance fee end date on the performance fee rule if you want to adjust the calculated amount.

Step 7. Accrue Expenses

You execute the Trigger Expense Accrual job again manually. The performance fee posts $1,325.55 for May 1. This number is calculated by dividing $41,092.05 by 31 days in May.

At start of day global processing on each subsequent day in May, the Trigger Expense Accrual job posts a performance fee of $1,325.55 each day, with the last day in May posting the exact amount needed to reach $41,092.05.

Step 8. May Fee Completes and System Adds June Fee Rules

During the accrual posting on May 31, the system updates the May fee rule to a Completed status. Additionally, due to the performance fee rule settings that follow, the system automatically adds two new performance fee rules for the month of June.

The first June fee rule represents the June estimate. It has the same values as the May rule, except the system resets the fee amount to $0.00, and again sets the status to Pending.

The second rule represents the May true-up that will be applied in June.

Step 9. Accrue Expenses

At start of day on June 1, the Trigger Expense Accrual job is executed via Start of Day Global Processing. You have not yet input the fund and benchmark return data into Eagle Accounting. As a result, the system does not run the performance fee because both rules are still in Pending status.

Step 10. Input Returns for May 31

In the middle of the day on June 1, you input the May 31 return numbers into Eagle Accounting using the event associated with the Create Performance and Benchmark Data panel. 

Step 11. Calculate Performance Fee Activity

You run the Performance Fee Activity Calculation event, using the Calculate Performance Fee Activity panel. The event calculates the following data, including fee rates, average net assets, and the fee amount for June.

The system saves this data to a performance calculation output table and links it to the performance fee rule by fee id and fee row instance.

The system saves the fee amount of $43,046.73 to the performance fee rule estimate. The rule is still Pending.

The system saves another row to the performance fee output table to show the difference between the estimate and the actual fee for May.

The system saves the fee amount of -$566.08 to the performance fee true-up rule. The process calculated the actual May fee amount as $41,092.05. But the May fee rule was estimated at $41,658.13. The system will spread the difference of -$566.08 across June. The rule is still Pending.

Step 12. Approve Performance Fees

You run the Performance Fee Approval event using the Approve Performance Fee panel. The panel runs the Performance Fee Activity Calculation Query, returning the June fee rules and the associated calculation output data. You must then approve the rule by submitting the performance fee approval event that changes the rules from Pending status to Active status.

For the estimate rule, you have the opportunity to change the performance fee rate and the performance fee end date.

For the true-up rule, you can change the performance fee end date. Due to the settings on the estimate rule, the system created the true-up rule for the entire month of June. Here, you can adjust the performance fee end date to suite your posting preference.

Step 13. Accrue Expenses

You execute the Trigger Expense Accrual job again, either manually, or as part of the transaction close schedule.

The performance fee posts $1,434.89 for June 1. This number is calculated by dividing $43,046.73 by 30 days in June.

The system also posts -$566.08 on June 1 for the true-up adjustments, because you elected to make a one-time posting on June 1.

At start of day on each subsequent day in June, the Trigger Expense Accrual job posts a performance fee of $1,434.89 on each day, with the last day in June posting the exact amount needed to reach $43,046.73.

This process continues indefinitely for subsequent months until you modify the Accrual Update Option on the latest fee rule to Manual, or you close the fee manually through the close panel.