High Water Mark Definition

Below please find a definition of “High Water Mark”

Financial Analysis Training & Glossary TermsHigh Water Mark: If you look at many hedge fund memorandums or marketing materials you have probably seen that many hedge funds offer high water mark protections for the investor. These are the status quo within the industry now and they assure investors that profit sharing will be calculated based on a fair valuation of returns earned. Many hedge funds collect a 2% fee on all assets and then a 20% performance fee, meaning that if the fund gains 100% in one year the hedge fund gets to keep 20% of those profits and the investor keeps the other 80%. A high water mark is the highest net asset value previously seen at the end of the fiscal year.

High Water Mark Example: An investor gives a hedge fund $500k in 2006 and that investment’s value falls to $300k. In 2007 the hedge fund produces 100% returns and that investment is now worth $600k. This individual would only have to pay performance fees on that gain between the $500k and $600k, not the full 100% gain ($300k) for that year.

Free MP3 Download:  To download our free 35 minute audio interview with expert Richard C. Wilson on how to succeed in the field of finance please click here.

Fast Financial Training: If you want to take your finance or business career to the next level you should explore our financial analysis certification program, or our training programs on financial modeling, investment banking, hedge funds, or private equity. All of these programs are offered on https://BusinessTraining.com

Expand Your Financial Vocabulary: Read more finance terms and definitions

Tags:  High Water Mark, Hedge Fund High Water Mark, Hedge Fund of Fund High Water Mark, Hedge Fund Investor Protections, Hedge Fund High Water Mark Definition, Hedge Fund Definitions, Hedge Fund Definition, Hedge Fund Explanation