18 examples, played out
Pick a question. Water is the portfolio, the gold line is the High Water Mark, and the fee is 20% of the green slice above it.
1
The portfolio grows. What is the fee?
A normal profitable quarter
Portfolio ₹3L, mark ₹3L.
Portfolio ₹3,00,000.00 · High Water Mark ₹3,00,000.00
Portfolio₹3,00,000
High Water Mark₹3,00,000
Fees so far₹0
You pay only on the new profit.Fee ₹10,000
Show the maths
You made ₹50,000 of new profit, so you pay 20% of it. The rest stays with you, and your High Water Mark moves up so this profit is never charged again.
| Starting portfolio value | ₹3,00,000 |
| Starting High Water Mark | ₹3,00,000 |
| Portfolio value at quarter-end | ₹3,50,000 |
| Applicable High Water Mark | ₹3,00,000 |
| Eligible profit | ₹50,000 |
| Performance fee at 20% | −₹10,000 |
| Final portfolio value | ₹3,40,000 |
| New High Water Mark | ₹3,40,000 |
Portfolio value moves to ₹3,50,000
- Portfolio value updated: ₹3,00,000.00 -> ₹3,50,000.00 (gain of ₹50,000.00)
- High Water Mark is unchanged at ₹3,00,000.00. It only changes when a fee is charged or when you add or remove money.
At quarter-end
- Portfolio value at the start of the period: ₹3,00,000.00
- High Water Mark at the start of the period: ₹3,00,000.00
- Applicable High Water Mark at period end: ₹3,00,000.00
- Portfolio value at the end of the period: ₹3,50,000.00
- New performance above the High Water Mark: ₹3,50,000.00 - ₹3,00,000.00 = ₹50,000.00
- Performance fee: ₹50,000.00 x 20% = ₹10,000.00
- Portfolio value after the fee: ₹3,50,000.00 - ₹10,000.00 = ₹3,40,000.00
- Your new High Water Mark is ₹3,40,000.00. The next fee is only charged on performance above this level, so this profit will not be charged again.