Performance fee cap
A maximum performance fee a manager can earn in a single period, expressed as a percentage of average net asset value. Limits investor downside from a strong outperformance year.
A performance fee cap puts an absolute ceiling on the performance fee a manager can charge in a single accounting period — usually expressed as a percentage of the fund's average net asset value over that period. The cap protects unit holders from a disproportionately large fee in an exceptional outperformance year.
Caps in NZ retail PIE funds are disclosed in the PDS fee table and detailed verbatim in the OMI. Examples observed in current NZ PDSs include "performance fee cap of 0.95% of average NAV" and "performance-based fees are capped at 2% of each fund's average net asset value per year". Where a cap is silent the fee is uncapped in principle, though the high-water mark and hurdle still apply.
When comparing two funds with similar headline annual fund charges and similar performance-fee rates, the cap can be the practical determinant of total-cost-to-investor in a strong year.
Related terms
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performance-fee
Performance fee
An additional fee a fund manager charges only when fund performance exceeds a defined benchmark or hurdle rate, typically subject to a high-water mark.
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HWM · high water mark
High-water mark (HWM)
The highest historical unit price a fund has reached after performance-fee crystallisation. A manager can only earn a new performance fee on gains above this mark — preventing double-charging on the same return.
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hurdle benchmark · performance-fee benchmark
Hurdle rate
The benchmark return that a fund's performance must beat before a performance fee can be charged. Common NZ shapes: OCR + a margin, an equity index, or an absolute % per year.
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OMI
Other Material Information (OMI)
A supplementary FMA-required disclosure document containing material information about a fund or scheme — typically conflicts of interest, related-party transactions, fee waivers, auditor/trustee/custodian identities — that is not included in the PDS.