Understand Prior Period Estimated Budgeted Expenses

Owned by Nancy Cohn (Deactivated)
Last updated: Mar 08, 2024
3 min read

You can set up a performance fee expense with Performance Fee Rule Type set to Prior Period Estimated Budgeted Expense. This type of performance fee is similar to the Prior Period Budgeted Expense, but it treats the projection like an estimate. The performance fee is based on the returns and average NAV for the prior period end date. It does not use any return or NAV data for the current rule period. It projects the prior period data onto the current period, spreading (or budgeting) the calculated fee over the current performance period. However, at the beginning of the next fee period, as with the Current Period Variable Expense type performance fee, it calculates the actual expense for the prior period and creates a separate true-up rule to get to the correct fee for that period.

When you use this method, the system creates a Pending entity fee rule. At the beginning of the performance period, the system calculates the fee value once. It looks up the return data for the last day in the prior period. If the fund outperforms its benchmark, it calculates a fee rate based on the return difference and the performance fee rule settings. It calculates an average NAV based on the performance fee rule settings and the performance fee expense settings. It also calculates the spread fee.

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. You must specify a NAV Comparison Period value for a Prior Period Estimated Budgeted Expense. 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. 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 a Prior Period Estimated Budgeted Expense. 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 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.