Posted by: Labdhi Mehta on Jan 01, 2018, 06.30 AM IST
1. High water mark is the highest value that a portfolio has reached.
2. Computation of high water mark portfolio value is typically taken on the date when performance fees are charged.
3. The portfolio manager can charge performance-based fee only on increase in portfolio value in excess of the previously achieved high water mark.
4. High water marks ensure that investors do not pay performance-based fees repeatedly for the same amount of performance or for poor performance.
5. If an initial contribution of Rs 10 lakh rises to Rs 12 lakh, a performance fee would be payable on the Rs 2 lakh made. Subsequently, the next performance fee will be charged only if the portfolio value goes above Rs 12 lakh and only on the amount over Rs 12 lakh.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)