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What is High Water Mark ?
|Date||1st of Jan||1st of Feb||1st of Mar||1st of Apr|
|Net Asset Value (NAV)||$100,000||$110,000||$105,000||$117,000|
|NAV After Performance Fee||$100,000||$107,000||$105,000||$114,000|
The above example assumes that $100,000 was invested. If the Managed Account had achieved a return of 10% for the month, your account would now be at $110,000 for the month. The performance fee for the first month would be calculated on the profit. The performance fee is 30%, therefore $3,000 is charged to the account. The now leaves the high-water mark at $107,000.
If in the second month of trading, the managed account made a net loss of $2,000, there would be no performance fee paid. However the high-water mark would remain at $107,000 as this remains the highest level after a performance fee has been taken.
In the third month the Managed Account returned to profitability, and returned $12,000 for the quarter, the balance would now be at $117,000. However since the high-water mark is at $107,000, there performance fee is only charged on the profit above the high water mark. i.e. 30% of $10,000 instead of 30% of $12,000.