The High-Water Mark is a critical feature in fund compensation structures, aligning fund managers’ interests with investors. It ensures that managers only earn performance fees when generating real value for clients. This mechanism protects investors from paying fees on gains that merely offset previous losses. The High-Water Mark also encourages long-term value creation rather than short-term risk-taking. Investors use this metric to compare fund structures and evaluate performance fee fairness. Review the High-Water Mark terms in fund agreements before investing.
