High Water Mark

A high water mark (HVM) is often applied to a performance fee calculation. This means that the manager receives performance fees only on increases in the net asset value (NAV) of the fund, in excess of the highest NAV it has previously achieved.

For example, if a fund were launched at a NAV per share of £100, which then rose to £120 in its first year, a performance fee would be payable on the £20 return for each share. If in the next year it dropped to £110, no fee would be paid. If in the third year the NAV per share rose to £130, a performance fee would be payable only on the £10 return from £120 (the HVM) to £130 rather than on the full return during that year from £110 to £130.