Performance fees use one of three methodologies. You can set up a performance fee expense with Performance Fee Rule Type set to Prior Period Estimated Budgeted Expense.
The Prior Period Estimated Budgeted Expense rule type is similar to the Prior Period Budgeted Expense, in that the system calculates this fee once per calculation period (monthly, quarterly, and so on) and then spreads the calculated expense over the number of days in the calculation period. However, there are two differences between these methodologies. For the Prior Period Estimated Budgeted Expense rule type, first, you can select a NAV comparison period for this type of fee. If you set up the fee to use average net assets of 1 year, but the fee uses a fee rule that also has a NAV Comparison Period of monthly average net assets, the procedure calculates the performance fee using both NAV components and applies the fee that is of the smaller value. Also, this type of fee always calculates a true-up amount for the prior period to ensure the fee is accurate for the prior period.
For example, the system estimates a $100 fee for July using June’s performance figures and spreads it throughout July. When you calculate the actual performance fee for July in August, the system determines that the actual July performance fee is $125. The system processes a true-up expense of $25 for July, and you have the option of spreading the $25 true-up for a number of days or taking a one-time hit for the true-up amount of $25.
When you use this methodology, you can perform the following general types of tasks:
- Set Up Performance Fee Rules. Ensure you specify a NAV Comparison Period value. You can require approval for a Prior Period type performance fee. For more information, see Manage Performance Fee Rules.
- Set Up Performance Fee Expenses. You must specify a Trueup Spreading Method. For more information, see Manage Performance Fee Expenses.
- Add and Update Performance Returns for Funds and Benchmarks. Prior period performance fees use the prior accrual calculation method date. For information, see Manage Performance and Benchmark Data.
- Calculate NAV Component. For performance fees that use a NAV component of Average Net assets, you calculate average net assets at the end of each day to ensure up to date average net assets are available for the calculation of performance fees. For more information, see Manage Average Net Assets for Performance Fees. For performance fees that use a NAV component of User Defined, you must input external NAVs. You can also override and adjust NAVs calculated for average net assets. For more information, see Manage NAV Overrides and Adjustments for Performance Fees.
- Calculate and Approve Performance Fee Amounts. You calculate performance fee activity at the beginning of each calculation period. For more information, see Calculate and Approve Performance Fee Activity.
- Process Expense Accruals. You can run accruals manually, schedule them, and/or use Automated Event Wrapper to run them.
For an example of the workflow for this method, see Prior Period Estimated Budgeted Expense Performance Fee Workflow Example.
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