BREAKING DOWN ‘High-Water Mark’
The high-water mark ensures that the manager does not get paid large sums for poor performance. So if the manager loses money over a period, he or she must get the fund above the high watermark before receiving a performance bonus. For example, say after reaching its peak a fund loses $100,000 in year one, and then makes $250,000 in year two. The manager therefore not only reached the high-water mark but exceeded it by $150,000 ($250,000 – $100,000), which is the amount on which the manager gets paid the bonus.
A high-water mark ensures fund managers are not paid performance fees when they perform poorly. If an investment loses value over a specified period of time, which is defined in the prospectus, its manager must recoup the losses and return the fund’s value above the high-water mark before he or she is entitled to a performance fee.
- Date: January 24, 2017
- Client: Johnson Group, US
- Category: Business
- Value: Johnson Group, US