High-Water Marks and Hedge Fund Management Contracts

William Goetzmann, Jonathan Ingersoll and Stephen Ross

Yale School of Management Working Papers from Yale School of Management

Abstract: Incentive or performance fees for money managers are frequently accompanied by high-water mark provisions which condition the payment of the performance fee upon exceeding the maximum achieved share value. In this paper, we show that hedge fund performance fees are valuable to money managers, and conversely represent a claim on a significant proportion of investor wealth. The high-water mark provisions in these contracts limit the value of the performance fees. We provide a closed-form solution to the high-water mark

Date: 1998-02-01, Revised 2001-08-01
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Related works:
Journal Article: High‐Water Marks and Hedge Fund Management Contracts (2003)
Working Paper: High-Water Marks and Hedge Fund Management Contracts (2001)
Working Paper: High-Water Marks and Hedge Fund Management Contracts (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:wpaper:ysm81

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