High Water Mark is a performance sharing mechanism that ensure fund manager perform at clients' interest. Illustrate in a simple example,
1. Client deposits initial funds that become the first level of High Water Mark (HWM). In this case a client deposits $100k.
2. After the first month Fund Manager gains a 10% profit which brings a client account up to a gross value of $110k. The Profit of that month is 10K.
3. Let’s assume a 20% performance sharing model or 2000, the account is remained at 108K.
This 108K become a new High Water Mark for the following month. If fund manager do not perform and increase the account more than 108K. No performance sharing is calculated.