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:
“I hate that which we have decided to call realism, even though I have been made one of its high priests.”
—Gustave Flaubert (1821–1880)
“What a dissimilarity we see in walking, swimming, and flying. And yet it is one and the same motion: it is just that the load- bearing capacity of the earth differs from that of the water, and that that of the water differs from that of the air! Thus we should also learn to fly as thinkers—and not imagine that we are thereby becoming idle dreamers!”
—Friedrich Nietzsche (1844–1900)
“I regard almost all quarrels of princes on the same footing, and I see nothing that marks man’s unreason so positively as war. Indeed, what folly to kill one another for interests often imaginary, and always for the pleasure of persons who do not think themselves even obliged to those who sacrifice themselves for them!”
—Mary Wortley, Lady Montagu (1689–1762)