A high-water mark protects investors from paying a performance fee twice for the same gains — the fund only earns a performance fee on genuinely new gains above its previous peak value.
How it works
The performance fee applies only to the portion of current NAV that exceeds the prior high-water mark; the management fee typically applies to the full current NAV regardless of performance, and the two are added together for the total fee.
What this does not include
This does not include a “hurdle rate” some funds also require (a minimum return threshold before any performance fee applies at all, on top of the high-water mark) — this calculator models the high-water mark provision alone.
How to use this calculator
- Enter current NAV, the prior high-water mark, performance fee rate, and management fee rate.
Frequently asked questions
What happens to the high-water mark after a fund posts a new peak?
It resets upward to the new peak NAV — the fund must then exceed that new, higher level before earning another performance fee.
Does the “2 and 20” structure always mean exactly those numbers?
No — “2 and 20” is shorthand for a common range (roughly 1-2% management fee, 15-20% performance fee), but actual terms vary meaningfully by fund and have generally trended lower across the industry over time.
Can a fund manager waive fees during a drawdown to retain investors?
Yes — some managers do reduce or waive management fees during a significant drawdown, though this is a business decision, not typically a contractual requirement.
