Definition: Performance fees are calculated by evaluating how much money was earned while following a specific leader. The leader is paid based on a percentage of the total amount of money the leader earned for the follower.

This system means followers will only pay the leader when the leader actually earns money for the follower. If the followers didn’t earn any money, the leader doesn’t get paid.

Performance is calculated by continuously looking at the amount of money that was earned by a portfolio while following the leader. Based on the amount of money that was earned, the leader will get a percent cut.

The Performance fee for a leader can be found on a leader's profile. In the screenshot below, we can see it is displayed under "Following Fee". If there is no Performance fee specified, that means the leader does not charge based on performance.

Example: Say you have a portfolio of $100 and decide to follow a leader with a 20% performance fee.

Imagine that after you started following the leader, your portfolio went from $100 to $200 in value. Then, the portfolio value dropped from $200 to $150. Finally, the value of the portfolio increased from $150 to $300.

Calculation: We can calculate the fee we would owe by removing any duplicate performance. As an example, the portfolio decreased in value from $200 to $150. During that period, we would not need to pay anything in fees to the leader. However, we also wouldn’t need to pay anything when the value of the portfolio went from $150 to $200 again (on its way to $300 in value). This duplicate performance doesn’t result in a charge. Instead, Shrimpy would only evaluate the total performance increase from $100 to $300.

Fee = ($300 - $100) x 0.2 = $40

High-Water Mark

The performance fee is calculated using a higher water mark (HWM). HWM is essentially the highest value of a portfolio up until the current point in time. Every time the value of a portfolio increases above the high-water mark, that means a fee will be incurred by the portfolio and paid to the leader. However, no fee will be charged as long as the portfolio is below the high-water mark.

The high-water mark is used to require leaders to continue earning money for followers, otherwise, the followers won’t pay anything.

Image taken from  <a href=https://shareprices.com.au/."/>

Image taken from https://shareprices.com.au/.

Notice how in the above image, when the portfolio value decreases from an earlier high, the portfolio is considered underwater and no longer incurs charges. Once the portfolio value breaks a new high, then the Performance fee is charged again for the portfolio.

Full Example Calculation

A leader selects to charge a 1% AUM fee and a 20% performance fee. Given $500,000 AUM at the start of the month, $1,000,000 AUM at the end of the month, and linear performance throughout the month. Let’s calculate our earnings.

For this example, we will assume that no followers stopped or started following during this period. As a result, the AUM and performance graphs would be the same.

The example AUM and performance increased linearly throughout the course of a 30-day month.

Calculating the earnings for this leader would be simple.

AUM Earnings = [AUMi + (AUMf - AUMi)] x 0.01 x 0.7

where,

  • AUMi is the initial value of the assets under management
  • AUMf is the final value of the assets under management
  • 0.01 is the percent fee for AUM
  • 0.7 is used to remove the 30% fee that will be taken by Shrimpy

Performance Earnings = (AUMf - AUMi) x 0.2 x 0.7

where,

  • AUMi is the initial value of the assets under management
  • AUMf is the final value of the assets under management
  • 0.2 is the percent fee for performance
  • 0.7 is used to remove the 30% fee that will be taken by Shrimpy

Note: We can only calculate performance based on AUM because we are assuming no followers started or stopped following over this period. Otherwise, we would need to calculate the performance earnings based on the high-water mark for every portfolio that is following this leader.

AUM Earnings = [$500,000 + ($1,000,000 - $500,000) / 2] x 0.01 x 0.7 = $5,250

Performance Earnings = ($1,000,000 - $500,000) x 0.2 x 0.7 = $70,000

Total Earnings = $75,250

The monthly payment for this leader would have been $75,250 based on this example fee structure. This demonstrates the huge potential that is available for leaders to earn money as a leader.

If you have any additional questions about Shrimpy, don't hesitate to reach out to [email protected] or use the internal Shrimpy support system to ask questions.

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