Ann: Market Update, page-13

Thanks - I went back and read their policy which is as below:

"Performance fees are recognised when financial performance outcomes in relation to funds managed by Blue Sky are highly probable and can be reliably measured. Performance fees are
accrued when there is evidence that the stated hurdle rate within the respective fund constituent document has been
exceeded. In order to ensure reliable measurement in relation to unrealised funds, performance fees are recognised and recorded after Blue Sky’s valuation has been reviewed by an independent expert or valuer, where material. In relation to realised funds, performance fees are recognised and recorded based on actual cash flows to investors following the realisation of assets within funds."

So, some of what they're booking is based on asset revals, and some based on asset sales. If they've been aggressively using the former to inflate performance fees, then yes, that'd be problematic and unsustainable, but according to their disclosures the cast majority of assets sell at or above carrying value, so I honestly don't think they're playing this game.

The game they definitely were playing was scooping up large upfront fees on their retail products, and lumping that revenue together with recurring base management fees. This was deliberately done because, when it comes to valuing fund managers, the most value in the platform comes from the base / recurring fee income - it's the most highly valued (high multiple) revenue stream of the business because it is supposed to be low volatility / recurring in nature. Clearly, if you're lumping a bunch of transaction revenue in with that, it's not as low volatility / recurring as everyone thought - that's what they've essentially admitted today.