A high-watermark performance fee is a fee structure used in managed investment services where the investor is only charged a performance fee on the investment if the value of their investment has increased above the previous highest value, or “high-watermark.” In other words, the investor is only charged a performance fee on the amount of their investment that represents an actual gain, rather than on the entire investment amount regardless of whether it has increased in value or not. This fee structure is intended to align the interests of the investor and the manager, as the manager is only rewarded for generating actual gains for the investor.
“Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes