Example Calculation of Performance Fees With a High Water Mark
Here’s one illustration we often use based on our fee structure of zero management fee + 30% monthly performance fee. All of the examples below are provided for illustrative purposes only, with no guarantee of actual market returns.
Assume you begin trading with us on the very first day of Month 1 with a starting account balance of $50,000 and and a 30% Performance Fee structure. The account’s value has increased to $55,000 by the end of Month 1. For the Month 1, the performance fee will be:
(30% * the $5,000 increase from $50,000 to $55,000) = $1,500
$1,500 is charged as a performance fee, and you decide to withdraw a portion of the profits valued at $2,000 from the account.
The new account balance and “high water mark” is $51,500 at the beginning of Month 2.
Assume we incurred a $2,000 loss in the Month 2 and our account balance at the end of Month 2 is $49,500.
As there was a negative performance, there won’t be any performance fee charged for Month 2.
At the end of Month 2, the account balance will be $49,500 with the High Water Mark value continuing to be at $51,500.
Assume we made a profit of $4,000 in Month 3, which will increase the account balance to $53,500 which is above the High Water Mark value of $51,500 at the beginning of Month 3.
So for Month 3, performance fee will be charged at 30% of the difference between the account balance and High Water Mark value as follows:
(30% * the $2,000 ($53,500 – $51,500) = $600
As you see in this scenario, the account earned a gross profit of $7,000 and paid out a total of $2,100 in performance fees, for a total profit of $4,900 from Month 1 to Month 3.
The performance fee is only charged for the new dollar of profit above the previous high water mark, ensuring that you are not charged twice on the same profit, and that we ultimately make money proportionate to how much money we make you.
Below is the illustration of the performance fee structure for a period of 12 consecutive Months:
Feel free to contact us with any questions.