Ongoing Charges – Highwire Extensions

Ongoing charges (OGC) calculations are required for the UCITS KIIDs. The UCITS regulation requires that “a single figure shall be shown for charges taken from the UCITS over a year, to be known as the “ongoing charges”, representing all annual charges and other payments taken from the assets of the UCITS over the defined period and based on the figures for the preceding year.” A statement is also required “that the ongoing charges figure is based on the last year’s expenses, for the year ending (month/ year).”

There are three scenarios where estimated figures can be used in lieu of the actual calculation:

Where the shareclass is unlaunched
Where the shareclass is newly launched (<12 months)
Where there is a material change to the charging structure and the previous 12 months charges are no longer representative.

In all such cases the statement referred to above such instead read: “The ongoing charges figure shown here is an estimate of the charges.” An explanation should then follow: e.g. as the shareclass is unlaunched, as the shareclass is launched less than 12 months and therefore insufficient data is available to calculate the actual charges, a material change has been made to the charging structure of the shareclass, which means that the previous 12 months charges are no longer representative of the charges an investor would face.

More details on the Methodology is set out below.

What costs are included/excluded?

The methodology for the preparation of the ongoing charges figures is contained in CESR 10-674 (link). It contains a section outlining the costs and charges that are to be included/excluded in the calculation.

In general, all costs are to be included with specific exceptions. Specific costs to be captured in the calculation include:

Payments made to delegated parties
– Management company
– Director
– Depositary
– Custodian
– Investment advised
Payments made to outsourced providers
– Fund administrators
– Shareholder service providers
Registration and regulatory fees
Audit, legal and professional fees
Distribution fees

Specific exclusions include:

Entry/exit fees
Performance fees
Interests on borrowing
Transaction charges
Margin class
Soft commissions

There are two significant additions to the above:

Where income is foregone to the shareclass as a result of a fee sharing agreement then this amount should be included as a cost to the shareclass. An example would be stock lending where the custodian and investment manager are often given some of the stock lending income as compensation for the work involved on their side.
Where the portfolio is investment in other collective investment schemes, it is required to include the ongoing charge of these products on a pro-rata bases in the ongoing charge of the shareclass. For example, if a shareclass has 20% of its portfolio investment in a Collective Investment Scheme with a n ongoing charge of 2.00%, then 0.40% should be added onto the end ongoing charge figure.

Calculation Methodology

Record Keeping