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:
“They talk about their Pilgrim blood,
Their birthright high and holy!
A mountain-stream that ends in mud
Methinks is melancholy.”
—James Russell Lowell (1819–1891)
“We then entered another swamp, at a necessarily slow pace, where the walking was worse than ever, not only on account of the water, but the fallen timber, which often obliterated the indistinct trail entirely. The fallen trees were so numerous, that for long distances the route was through a succession of small yards, where we climbed over fences as high as our heads, down into water often up to our knees, and then over another fence into a second yard, and so on.”
—Henry David Thoreau (1817–1862)
“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)