Watermark (high)
InvestingDefinition
In hedge fund fee structures, the high watermark is the highest NAV the fund has ever reached. Performance fees only apply to gains ABOVE the high watermark — so investors don't pay performance fees twice on the same gains.
If a fund peaks at $100, falls to $80, then returns to $95 — no performance fee owed because $95 is still below the $100 watermark.
If a fund peaks at $100, falls to $80, then returns to $95 — no performance fee owed because $95 is still below the $100 watermark.