Performance Fee changes to the underlying funds of various BlackRock funds

23 May 2019

Friends Provident International Limited (“Friends Provident International”) has been notified by BlackRock Strategic Funds (“The Company”) of the below proposed changes to the Company and its sub-funds. These changes will come into effect from the 01 June 2019 (the “Effective Date”), unless otherwise indicated and will affect the underlying funds of the below listed Friends Provident International mirror funds.

  • L72 BlackRock SF - Managed Index Portfolios Defensive (GBP)
  • L73 BlackRock SF - Managed Index Portfolios Moderate (GBP)
  • L74 BlackRock SF - Managed Index Portfolios Growth (GBP)
  • L75 BlackRock SF - Managed Index Portfolios Defensive (USD)
  • L76 BlackRock SF - Managed Index Portfolios Moderate (USD)
  • L77 BlackRock SF - Managed Index Portfolios Growth (USD)

The Company have stated:

“As part of a comprehensive review and to reflect developments in industry practice, BlackRock has proposed a change to the performance fee calculation methodology.

The introduction of the money weighted component to the calculation better reconciles the interests of Shareholders with BlackRock and ensures that Shareholders pay a performance fee more closely aligned with the performance that they have experienced. The revised methodology introduces a clear set of protection mechanisms for Shareholders regardless of the point at which they invest in the Share Class during the performance period.

The Management Company and Directors have reviewed the proposal in detail and believe the change of methodology is appropriate.

Performance Fee Funds are divided into two types: Type A Funds, which is where the relevant Fund’s performance is measured net of an interest rate (such as LIBOR) and Type B Funds, where a market benchmark is used instead. Details of whether a Fund is Type A or Type B can be found in Appendix F of the Prospectus. Type A Funds generally target an absolute return and as such, their performance cannot be measured relative to the market.

The material changes to the performance fee calculation will affect Type A Funds only.

The revised wording will be available from the Effective Date. However, we have provided some further explanation below in advance of the full wording being made available from the Effective Date

1. Money Weighted Price

The Money Weighted Price has been introduced to the calculation methodology so as to weight subscriptions or switches into the Fund during the Performance Period to ensure that the calculation of any performance fee due to the Manager is proportionate with the size of the Share Class and the performance achieved. The Money Weighted Price definition is as follows:

  • the Launch NAV; or
  • on the first day of a subsequent Performance Period, the higher of:
    • the previous day’s Money Weighted Price; and
    • the previous day’s Net Asset Value per Share if a Performance Fee has been paid out; or
  • in respect of any other Valuation Day, the previous day's Money Weighted Price adjusted by subscriptions or switches into the Share Class on that Valuation Day.

2. High Watermark definition

A definition of the High Watermark will be included as follows:

  • “For the first Performance Period of a Share Class the initial NAV per Share; or
  • in subsequent Performance Periods the Net Asset Value per Share at the end of the last Performance Period where a performance fee has been paid out.”

3. Definition of Reference NAV

The definition of Reference NAV has been amended to reflect the inclusion of the Money Weighted Price. A table showing the changes can be found below:

Current Wording

Revised Wording

With respect to Type A Funds, either for the first Performance Period of a Share Class the initial Net Asset Value per Share, or in subsequent Performance Periods the Reference NAV will be the higher of:

  • the NAV per Share of the Share Class at the end of the previous Performance Period where a performance fee has been paid out, adjusted by an accumulated hurdle since the last performance fee was paid out; or
  • the NAV per Share at the end of the previous Performance Period

With respect to Type A Funds, the Reference NAV will be the higher of (in each case as adjusted by the Benchmark Return):

  • the High Watermark; or
  • the Money Weighted Price,

in each case as reduced by the rate of any distribution in respect of Shares made during the relevant Performance Period.

4. Calculation Methodology change

In respect of Type A Funds, a mechanism will be introduced (incorporated in the Money Weighted Price, the Reference NAV and the High Watermark concepts, as explained above) that ensures that any performance fee calculation remains proportional to the size of the Fund. As the calculation methodology is no longer a day on day return calculation but a difference between the Reference NAV and the Current Day NAV (net of fees), the calculation methodologies in respect of Type A Funds and Type B Funds have been split for the purposes of clarity and transparency.”

Should you have any questions regarding these changes, please contact International Funds & Investments.