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:
“We assume that politicians are without honor. We read their statements trying to crack the code. The scandals of their politics: not so much that men in high places lie, only that they do so with such indifference, so endlessly, still expecting to be believed. We are accustomed to the contempt inherent in the political lie.”
—Adrienne Rich (b. 1929)
“All water has a perfect memory and is forever trying to get back to where it was.”
—Toni Morrison (b. 1931)
“I am glad I made the late race. It gave me a hearing on the great and durable question of the age, which I could have had in no other way; and though I now sink out of view, and shall be forgotten, I believe I have made some marks which will tell for the cause of civil liberty long after I am gone.”
—Abraham Lincoln (1809–1865)