performance fee - smoke and mirrors?

Does anyone understand from the recent announcements and prospectus what is going to happen to the performance fee?

Unchanged? Changed? If changed, how and why?

They haven't spelt it out in plain, easy to understand language.

With the fall off in the Indian market since Jan 08, and the terms of the (previous) performance fee, shareholders wouldn't have expected to pay any performance fee for quite some time.

Extract from page 6 of 2008 Annual Report:
"Despite the Portfolio return (adjusted for capital flows) for the period (-20.8%) exceeding the BSE 200 Index measured
in Australian Dollars (-23.9%), it did not exceed the stated absolute benchmark return of +20% per annum and hence
no performance fee was payable by the Company. The deficit in performance (the shortfall between the portfolio
return and the absolute benchmark return for the 2008 financial year) must be recovered before the Company will
pay any future performance fee, subject to a reset condition."

From the data provided by INE in the June Quarterly Report it seems that the FY09 portfolio return was 2.5%. Way below the 20% benchmark. So another deficit that needs to be recovered before a performance fee is paid.

Extract from page 24 of 1-for-3 Rights Issue Prospectus:
"PAMS will also be entitled to a performance fee under the Investment Advisory Agreement if the Portfolio Return (as defined in the Investment Advisory Agreement) exceeds both the Absolute Benchmark Return and Relative Benchmark Return
(as respectively defined in the Investment Advisory Agreement) for the relevant period. The performance fee for the first six months will be calculated as an amount equal to 10% of the amount by which the Portfolio Return exceeds the Absolute Benchmark Return (capped at 2.5% of the Portfolio Value on the first day of such six month period).

The Performance Fee for subsequent periods will be adjusted for any Excess Return or Deficit (as respectively defined in the Investment Advisory Agreement) carried forward. After the expiry of the initial 6 month period the Parties must communicate to discuss and evaluate (and to the extent necessary amend) the Performance Fee.

Excess Return or Deficit accumulated over 8 Performance Fee Calculation Periods is reset to zero at the beginning of the next Performance Fee Calculation Period. The first reset date is 4 years from the Commencement Date."

This sounds like the former performance deficit has just disappeared! And who suffers? Shareholders of course. How convenient, just when the Indian market may have hit its bottom. Fair enough the new manager should get a performance fee if they perform, but why should Olympus?

DYOR - Do Your Own Research
&
RTFP - Read The Fine Print