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:
“The house one story high in front, three stories
On the end it presented to the road.”
—Robert Frost (1874–1963)
“Our star was brighter perhaps when it had water in it.
Now there is no question even of that, but only
Of holding on to the hard earth so as not to get thrown off,
With an occasional dream, a vision ...”
—John Ashbery (b. 1927)
“It has come to be practically a sort of rule in literature, that a man, having once shown himself capable of original writing, is entitled thenceforth to steal from the writings of others at discretion. Thought is the property of him who can entertain it; and of him who can adequately place it. A certain awkwardness marks the use of borrowed thoughts; but, as soon as we have learned what to do with them, they become our own.”
—Ralph Waldo Emerson (1803–1882)