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High Water Mark for manager's fees

Matthew Copper (CopperCM)
May 11 2013 at 21:33
8 Posts

I have a question about managers performance structure. When a manager says they get x% for profits with a high water mark is that on the account balance or account equity. Thanks

Aaron (aaronmdr)
May 13 2013 at 06:02
16 Posts
You gotta check with your account manager for their exact definition.

The trend is your friend!
Matthew Copper (CopperCM)
May 13 2013 at 16:14
8 Posts
May 14 2013 at 04:24
72 Posts
Account Equity is Standard for all high water mark calculations.

Matthew Copper (CopperCM)
May 14 2013 at 12:22
8 Posts
Art_1637 (Haggan798)
May 14 2013 at 21:13
5 Posts
folks if you don't know - don't confuse people.

here's the exact definition:


Investopedia explains 'High-Water Mark'

The high-water mark ensures that the manager does not get paid large sums for poor performance. So if the manager loses money over a period, he or she must get the fund above the high watermark before receiving a performance bonus. For example, say after reaching its peak a fund loses $100,000 in year one, and then makes $250,000 in year two. The manager therefore not only reached the high-water mark but exceeded it by $150,000 ($250,000 - $100,000), which is the amount on which the manager gets paid the bonus.

Art_1637 (Haggan798)
May 14 2013 at 21:15
5 Posts
should be calculated from balance. Equity involves too much uncertainty ( 'floating' money) and it makes no sense since client will be paying performance fee from equity and not closed positions aka balance at the end of a period.
May 15 2013 at 06:54
45 Posts
Yes I agree, it should be from the account balance, not equity, that is how i do it to all of my managed account clients.

May 15 2013 at 08:24
72 Posts
If Equity is $100,000 and your Balance is $150,000. You can only withdraw the $100,000 right?

You can not charge a client a performance fee based on Account Balance until Equity equals the Account Balance.

Therefore, all trades must be closed or your performance Fee must be calculated from the current Equity status when Fee is calculated.

The Equity Amount must be higher than the concurrent month or No Performance Fee. You can not Hold your losses ( floating Equity is less than Account Balance) and expect to calculate a performance fee based on the Account Balance level.
May 15 2013 at 08:33
45 Posts
Hmmm, you have a very good point there, yes you are right, i am a scalper where all of my trades are closed in seconds, so i never experience any condition where my balance is for example 150,000 but equity is 100,000 due to floating loss caused by long term trading or hedging, thanks for clearing it up :)

CrazyTraderfx (CrazyTrader)
May 15 2013 at 13:22
1718 Posts
SiamFXNET posted:
If Equity is $100,000 and your Balance is $150,000. You can only withdraw the $100,000 right?

That's wrong totally wrong! Your broker will never let you do that. I let you think about it!!!

May 15 2013 at 16:16
28 Posts
Guys... high water mark is simple.

Your 'fund manager' or 'money manager' simply charges a fixed percentage (agreed at the beginning of the investment) of what ever your investment sum is in the green, either month on month (typically) or annually...

Manager' typically charge 20% high water mark, month on month...

To give you an example:

£10,000 invested.

January: +4% = £400.00 = Manager's high water mark of 20% = £80.00 = Investment £10,320.00

February: -2% = -£206.40 = Manager gets nothing... = £10,113.60

March: +2% = £202.27 = Manager gets nothing... = £10,315.87

April: +3% = £309.47 = Manager's high water mark of 20% = (March £10,315.87 - Jan £10,320 = £4.13 - £309.47 = £305.34 / 20% = £61.07 (Manager Charge) = Investment £10,564.27

And so on...

It's great for the fund manager's because they're taking 0 risk and if they remain liquid (investment funds running in and out etc.) it means that every individual investor's performance isn't going to be identical. Therefore the fund managers are typically getting paid most of the time (depending on their consistency of course!)

The reason why the manager gets nothing in the month of March is because they only get paid based upon new equity high's which is typically calculated on a month end basis.

High water mark is the best choice for an investor because they know that the hedge fund manager (or what ever) is not getting paid unless you are...

Matthew Copper (CopperCM)
May 15 2013 at 18:20
8 Posts
Thanks for all the help. The questions that you have discussed are the ones that I was trying to answer. Thanks for all the input.

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