High Water Marks
The highest NAV of a fund to date is known as the "high water mark". If the NAV of a fund declines during a year, no performance fee will be payable to the investment manager. If the NAV subsequently increases over the following year back to the high water mark (but no higher), it would be objectionable for the investor to be charged a performance fee on that increase because the investor has not yet made any return on its investment. Therefore, to address this concern, hedge funds will typically only charge a performance fee on increases in NAV over the high water mark.
Read more about this topic: Performance Fee
Famous quotes containing the words high, water and/or marks:
“An epic of worry rather than of high tragedy.”
—E.M. (Edward Morgan)
“The tower nearest the water gets the moonlight first.”
—Chinese proverb.
“In the theater, while you recognized that you were looking at a house, it was a house in quotation marks. On screen, the quotation marks tend to be blotted out by the camera.”
—Arthur Miller (b. 1915)