Understand Current Period Variable Expenses

You can set up a performance fee expense with Performance Fee Rule Type set to Current Period Variable Expense. The performance fee is based on daily returns in the current period. It includes the return and NAV for all the days in the current fee rule period. Calculations are always based on prior day numbers, so at the beginning of the next period, the system calculates the expense for the final day in the prior period and creates a separate true-up rule to get to the correct fee for that period.

An example follows. You set up a performance entity fee rule with a Quarterly performance period (based on fiscal year quarters). The fund’s fiscal year end date is 12/31.You choose an initial start date of 2/1. The end date is calculated as 3/31. You choose an average NAV period of 1 year. For each daily accrual, the average NAV is calculated from 4/1 of the prior year through 3/31 of the current year. On the last accrual day, the system automatically adds the next quarter’s rule for 4/1 through 6/30. On the 4/1 accrual, the average NAV period becomes 7/1 of the prior year through 6/30 of the current year.

The expense accrues daily. Each day the system checks the return data for the prior business day. If the fund outperforms its benchmark according to the criteria in the performance fee rule, the system calculates a fee rate based on the prior day return difference and the performance fee rule criteria. The system calculates an average NAV, based on the performance fee rule settings and the performance expense settings, calculates the daily fee value, and posts it to Eagle Accounting. 

When you use the Current Period Variable Expense methodology for performance fees, you perform the following general types of tasks: 

• Set Up Performance Fee Rules. You set Fee Approval to AutoApprove so fees post automatically as variable expenses do. For more information, see Manage Performance Fee Rules.

• Set Up Performance Fee Expenses. If you select a NAV Component of Average Net Assets, you can specify the Rolling Avg Net Asset Calculation option of Actual or Estimates. For more information, see Manage Performance Fee Expenses. 

• Maintain Performance Returns for Funds and Benchmarks. Current Period performance fees need return data from the previous accounting 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 must 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.

• Process Expense Accruals. You can run accruals manually, schedule them, and/or use Automated Event Wrapper to run them. 

For a detailed example of the workflow used for this method, see Current Period Variable Expense Performance Fee Workflow Example.