High-Water Mark

Loading the player...

What is a 'High-Water Mark'

A high-water mark is the highest peak in value that an investment fund/account has reached. This term is often used in the context of fund manager compensation, which is performance based.

BREAKING DOWN 'High-Water Mark'

The high-water mark ensures that the manager does not get paid large sums for poor performance. So if the manager loses money over a period, he or she must get the fund above the high watermark before receiving a performance bonus. For example, say after reaching its peak a fund loses $100,000 in year one, and then makes $250,000 in year two. The manager therefore not only reached the high-water mark but exceeded it by $150,000 ($250,000 - $100,000), which is the amount on which the manager gets paid the bonus.

RELATED TERMS
  1. Two And Twenty

    A type of compensation structure that hedge fund managers typically ...
  2. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  3. Cash Bonus

    A lump sum of money awarded to an employee, either occasionally ...
  4. Portfolio Pumping

    The illegal act of bidding up the value of a fund's holdings ...
  5. Performance Fee

    A payment made to a fund manager for generating positive returns. ...
  6. Management Tenure

    The length of time that a manager(s) has been at the helm of ...
Related Articles
  1. Career Education & Resources

    This Is How Much Mutual Fund Managers Make

    Learn about the high-paying salaries of mutual fund managers and the low level of transparency in income reporting by mutual fund companies.
  2. Mutual Funds & ETFs

    Should You Follow Your Fund Manager?

    Learn how to tell if a fund in flux is still a suitable investment.
  3. Mutual Funds & ETFs

    Choose A Fund With A Winning Manager

    We break down the key components of analyzing a fund manager's performance so you can find a winner.
  4. Mutual Funds & ETFs

    Your Mutual Fund: It's Riskier Than You Think

    Fund managers often take on more risk than they should, putting business ahead of fund holders' interests.
  5. Mutual Funds & ETFs

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  6. Professionals

    3 Reasons Businesses Give Bonuses to Poor Performers

    Learn more how bonuses paid to poorly-performing employees affect a company and why many businesses are still paying out financial rewards to such workers.
  7. Options & Futures

    Has Your Fund Manager Been Through A Bear Market?

    How to find a portfolio that will survive when the bulls stop charging.
  8. Options & Futures

    Fund I-Q No.4: Manager Tenure and Structure

    By Richard Loth (Contact | Biography)A long-term fund performance record, preferably over a 10-year period, provides the best indicator of a manager's investing abilities. Accordingly, one of ...
  9. Professionals

    How Mutual Fund Managers Pick Stocks

    Learn about how mutual fund managers choose stocks based on the type of funds they manage and the investment goals of the funds' shareholders.
  10. Mutual Funds & ETFs

    Pick The Winners At The Mutual Fund Track!

    For both mutual funds and racehorses, there's no surefire way to pick a winner.
RELATED FAQS
  1. How do mutual fund managers make money?

    Learn about the compensation structure for fund managers and how investors can obtain information on managers' base salaries ... Read Answer >>
  2. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
  3. Where do most fund managers get their market information?

    Many fund managers, whether they manage a mutual fund, trust fund, pension or hedge fund, have access to resources that the ... Read Answer >>
  4. What's the difference between a mutual fund and a hedge fund?

    These two types of investment products have their similarities and differences. First, the similarities: Both mutual funds ... Read Answer >>
  5. What are the disadvantages of an index fund over an actively managed fund?

    Read the advantages an actively managed fund has over its more staid compatriot, the indexed fund, and make your own decision ... Read Answer >>
  6. How can I use fundamental analysis techniques to evaluate a mutual fund?

    Learn about some of the basic elements of fundamental analysis when applied to mutual funds, particularly risk analysis and ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center