Question-and-Answer Session
Operator
Thank you, sir. We will now begin the question-and-answer session.
[Operator Instructions].
Our first question today comes from Chris Haley of Wachovia.
Brendan Maiorana - Wachovia
Hi, good morning guys. It’s Brendan Maiorana with Chris. Couple of questions. First, in terms of the accrued performance fees, are most of those fees calculated based on a percentage of the increase in value of the underlying assets within the funds?
Robert J. Harding - Chairman
The way we determine those fees, Brendan, is we look at the? it’s obviously dependent on the contractual terms of each particular fund, and we assess where the fund is at that date? at the date of? the reporting date and assume as though the fees are realized at that time. So, it’s not necessarily a percentage of the increase. There’s often a threshold involved it, so with the portion of the increase in value above that threshold or in some cases it may simply be a performance on a cumulative basis of net operating income over again a specific return threshold.
Brendan Maiorana - Wachovia
Okay. So, I guess, it sounds like you have a mix in between sort of? a percentage above a threshold of value creation plus some percentage of operating cash flow. If I think about adjusting the funds that you are? or the accrued fees you are getting on the value creation part of it, it would strike me that a lot the value creation for the underlying assets could have been early on in the lifecycle of the asset, just by either acquiring the asset and a more attractive purchase price then maybe a market price or picking up some of the low hanging fruit. So, thinking about that, how do you think the trajectory and the growth of accrued performance fees likely to be relative to where it has been over the past couple of year just for the existing fund?
Robert J. Harding - Chairman
I guess, I responded, obviously, in general, we try to take a pretty conservative approach to how we determine these and why there are certainly going to be some situations where you might be able to acquire something at discount where it is very quickly revalued, what we focus on is how that revaluations is done. And so, if it’s something that’s pretty objective in a market price that can be pretty clear and easy. On the other hand, if you are looking at discount rate or cap rate things like that, we would be less likely to major adjustments based on movements and those sorts of factors. Absent a objective benchmark that pertains specifically to those type of assets such as the underlying cash flow for example. For example, we might not change the cap rate on something, but we would certainly apply that same cap rate to? and increasing the cash flow, which would give rise to an increase in valuation.
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