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High-water mark

A provision preventing a manager earning performance fees on gains that merely recover prior losses.

High-water mark — A provision preventing a manager earning performance fees on gains that merely recover prior losses.

A high-water mark that resets or is quietly renegotiated after a bad period defeats its own purpose — allocators specifically check whether a fund's high-water mark provision is genuinely permanent or subject to manager discretion to reset it.

Frequently asked questions

What is a high-water mark?

A provision ensuring a manager only earns performance fees on genuinely new gains, not on recovering losses already suffered — an investor who lost money and then broke even pays no performance fee on that recovery.

Can a high-water mark be reset?

Some fund documents allow resets under specific conditions, which allocators view skeptically since it can effectively let a manager earn fees on the same gains twice across a loss-and-recovery cycle.

Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.

WaterfallThe order in which distributions are split between investors and the manager, through retu Carried interestThe manager's share of fund profits, typically paid after a preferred return and a catch-u Hurdle rateSee preferred return.

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