Our services in the selected country:
  • No services available for your region.
Select Country:
Remember my selection
Your browser is out of date. It has known security flaws and may not display all features of this and other websites

SICAV Performance Fee Guide

EMAIL THIS

Note: Separate multiple email address with a comma or semicolon.

SEND
Send me a copy

EMAIL THIS

Note: Separate multiple email address with a comma or semicolon.

Your Name:

Your Email Address:

OPEN EMAIL TO SEND
Send me a copy

For certain share classes of some Portfolios within the Goldman Sachs Funds SICAV / SICAV II, GSAM charges a performance based incentive fee where it generates a positive cumulative excess return for investors. This is in addition to its management fee and other operating expenses. The rate of the performance fee applied for each Portfolio and performance fee share classes is set out in the share class table of the relevant Prospectus Supplement.

Why do we charge performance fees?

We believe that the way we charge performance fees helps to align the interests of the investor with those of GSAM by seeking to ensure that GSAM only receives a performance fee when it generates a positive net excess return (relative to the Portfolio’s benchmark hurdle) for investors over the full accounting year.

How does the performance fee work?

A performance fee calculation is carried out for each share class and this accrues (i.e. it is included in the Portfolio’s NAV) daily based on the cumulative net excess return for that particular share class (i.e. after fees and expenses and above the benchmark hurdle). Only where there is a positive cumulative net excess return at the accounting year-end or the end of the investor holding period (if shorter) will a performance fee become payable to GSAM.

What is the benchmark hurdle?

In addition to the high water mark (described below), the performance fee calculation is also subject to a benchmark hurdle based on the reference benchmark rate (e.g. 3-Month USD LIBOR). This benchmark hurdle is applied to the high water mark to calculate an adjusted high water mark, which must be exceeded before a performance fee is accrued. This is designed to ensure that a performance fee is not charged until the net excess return of the share class exceeds the reference benchmark return.

What is the high water mark?

It is the highest value that a share class has had since its inception.

Will the performance fee operate with a high water mark?

The performance fee calculation is subject to a high water mark which must be exceeded before a performance fee is accrued. This is designed to ensure that a performance fee is not charged until any previous losses have been recovered. The high water mark for each share class will initially be set equal to the value of the share class at launch.

When is the high water mark reset?

Where there is a positive cumulative net excess return at the end of the accounting year and a performance fee becomes payable to GSAM, the high water mark will be reset to the net asset value per share on the last business day of the accounting year. However where the share class has underperformed over the full accounting year, no performance fee will be charged and the high water mark will remain unchanged from the prior accounting year.

What happens where there is underperformance?

Where the relevant share class underperforms the adjusted high water mark, any underperformance is tracked and has to be recovered by any subsequent outperformance before a performance fee can be accrued. Where there is already a performance fee accrual during the accounting year, the accrual will be reduced to reflect any subsequent underperformance, although this will not be reduced below zero. However, investors should be aware that, where there is outperformance over the full accounting year which results in a performance fee being charged, and this is followed by underperformance in subsequent accounting years, there will be no refund of prior year performance fees.

Example 1: Annual Vesting Performance Fee Illustration

Exhibit-1

Please note that these examples are for illustrative purposes only and there is no guarantee that any Portfolios will achieve these returns.


As can be seen from the above illustration, the benchmark hurdle is applied to the high water mark to calculate an adjusted high water mark, which the net asset value must exceed before there can be an accrual of performance fees. Also note that investors may be subject to different performance fees accruals depending on holdings period / redemptions dates.

Where this occurs and there is positive cumulative net excess return at the accounting year end, then a performance fee will be charged and the high water mark / adjusted high water mark will be reset to the net asset value per share on the last business day of the year.

How is the performance fee paid?

The performance fee is accrued daily and deducted as an expense from the net asset value of the relevant share class. At the end of the accounting year, any accrued performance fee will crystallise and become payable to GSAM.

Where an investor redeems or switches their shares during the accounting year, any performance fee accrual in respect of those shares will crystallise on that dealing day and become immediately payable to GSAM. This is designed to ensure that each Shareholder pays the correct performance fee for their respective holding period.

Are there any other considerations to be aware of?

There are two key considerations:

1. The cumulative annual performance fee calculation for each share class may lead to dilution in the net asset value per share for existing investors and a performance fee “free ride” for new investors. Both of these scenarios are further detailed below:

Performance Fee “Free Ride”

Due to the above mentioned high water mark mechanism, which prevents a performance fee being charged until the net asset value per share has exceeded the high water mark, an investor subscribing at a net asset value below the high water mark will benefit from any net excess return between the subscription net asset value per share and the high water mark without incurring a performance fee (i.e. “Free Ride”). This will benefit any new investors subscribing to a Portfolio that has recently underperformed, although there is no adverse impact on existing investors.

Example 2: Free Ride Illustration

As can be seen from the below illustration, any investor subscribing prior to 30 November 2015 will benefit from any appreciation between the subscription net asset value per share and the high water mark (i.e. 100) without incurring a performance fee.

Exhibit-2

Please note that these examples are for illustrative purposes only and there is no guarantee that any Portfolios will achieve these returns.


Potential Net Asset Value Dilution

Performance fees are accrued based on the cumulative net excess return for that particular share class on a daily basis. As described above, when there is already a performance fee accrual during the accounting year, the accrual will be reduced to reflect any subsequent underperformance. As such, after a period of outperformance, subsequent underperformance would require reversal of an amount of performance fees. Given the daily liquidity of the share classes, the investor base of the share class may change from time to time. As such, should there be net subscriptions subsequent to the period of outperformance; the reversal of the performance fee accrual will be shared across a broader investor base, which may lead to dilution in the net asset value per share.

Example 3: Potential Net Asset Value Dilution Illustration

Exhibit-3

2. Given performance fees will be subject to a benchmark hurdle based on the reference benchmark rate of the Portfolio (please see C. What is the benchmark hurdle?), there might be instances when the reference benchmark rates is negative (e.g. EUR Libor 3 months, 3 months STIBOR) and the Portfolio generates a positive net excess return, resulting in a performance fee accrual, even if the absolute performance of the Portfolio is negative.

See an example below, for illustrative purposes only:

• Cumulative share class return after fees and expenses: -1.5%.
•  Cumulative benchmark hurdle rate: -2.0%
•  Cumulative excess return: +0.5%
•  Cumulative net excess return = Cumulative share class return after fees and expenses –

Cumulative benchmark hurdle rate = +0.5%, i.e. positive which will result in performance fees.

Does GSAM offer non-performance fee share classes?

In some circumstances, GSAM may make available flat management fee share classes (i.e. no performance fee) for certain Portfolios that generally charge a performance fee. Such share classes, using a Base class with a flat management fee as an example, would be denoted: “Base (Flat)”.

Flat fee share classes operate the same sales charge, distribution fee and operating expenses of the equivalent corresponding share class (e.g. Base) although where they do not charge a performance fee they will be subject to a higher annual management fee.

What are the potential differences in returns with a non-performance fee share class?

Please see below for an illustration of the potential difference in returns between a share class charging a performance fee and a flat management fee share class in different return scenarios over the accounting year. Please note that these examples are for illustrative purposes only and there is no guarantee that any Portfolios will achieve these returns.

Example 4: Portfolio Outperforms Over the Accounting Year

• Cumulative share class return before fees and expenses is 6.25%
• Cumulative benchmark hurdle return is 2%
• Annual performance fee rate is 10%
• Total management fee and expenses for performance fee share class is 1.25%
• Total management fee and expenses for flat management fee share class is 1.55%
 

  Base Class with Performance Fee Base with Management Fee
Gross Cumulative Share Class Return 6.25% 6.25%
Less: Management Fee and Expenses
(1.25%) (1.55%)
Net Cumulative Share Class Return
5.00% 4.70%
Less: Performance Fee (*3% x 10%)
(0.30%) -
Net Cumulative Share Class Return 4.70% 4.70%


For performance fee share classes, investors will be subject to different levels of total fees depending on the level of performance in the share class. The below illustrates three scenarios for Performance Fee share classes and Flat Management Fee share classes and the total fees in each of them. Where the gross cumulative share class return is greater than 6.25%, investors in the performance fee share class would be subject to higher total fees. Conversely, where the gross cumulative share class return is less than 6.25%, investors in the performance fee share class would be subject to lower total fees.

  Performance Fee Share Class Flat Management Fee Share Class
Gross Cumulative Share Class Return 3.25% 6.25% 8.25% 3.25% 6.25% 8.25%
Management Fee and Expenses
1.25% 1.25% 1.25% 1.55% 1.55% 1.55%
Performance Fee
0% 0.30% 0.50% - - -
Total Fees
1.25% 1.55% 1.75% 1.55% 1.55% 1.55%
Exhibit-4

Summary

Whilst GSAM believes that offering performance fee share classes on certain Portfolios helps to align the interests of the investor with those of GSAM, we recognise that in some circumstances investors may prefer the certainty of a flat management fee share class, while acknowledging that, as per the scenario in Example 4 above, it may result in higher fees, and therefore in such cases a flat management fee share class may be offered. For further information on performance fees and available share classes, please contact the Management Company on +44 (0) 207 774 6366 or your Goldman Sachs professional.

Related Pages

Duration Hedged Share Classes of Goldman Sachs Funds

GSAM currently offers Duration Hedged share classes for specified bond funds in Goldman Sachs Funds, its UCITS-qualifying SICAV domiciled in Luxembourg. Learn about duration hedging and GSAM’s approach to hedging the reference benchmark’s interest rate risk for its bond funds with duration hedged share classes.

Gross and Stable NAV

GSAM launched Gross and Stable distribution share classes that will be made available on certain Portfolios in the UCITS-qualifying Luxembourg-domiciled Goldman Sachs Funds SICAV. Learn about the new distribution share class types and the associated risks of each distribution policy.

SICAV Currency Hedged Share Class Guide

GSAM makes available currency hedged share classes on certain Portfolios of its UCITS-qualifying Goldman Sachs Funds SICAV. Access further information and key considerations related to currency hedged share classes, and information on the hedging process itself and the potential impact on performance.