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:
“As for your high towers and monuments, there was a crazy fellow once in this town who undertook to dig through to China, and he got so far that, as he said, he heard the Chinese pots and kettles rattle; but I think that I shall not go out of my way to admire the hole which he made.”
—Henry David Thoreau (1817–1862)
“What’s water but the generated soul?”
—William Butler Yeats (1865–1939)
“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)