Should I subtract management fees before applying the high-water mark?
Some examples seem to check the high-water mark after management fees, but others talk about gross ending value. How should I avoid mixing up the order?
Follow the stem. The exam question should tell you whether the performance fee is calculated on gross assets, net-of-management-fee assets, or another defined base. There is no single ordering rule that overrides the fee language.
For example, if the problem says performance fees are calculated after management fees, first subtract the management fee. If a fund ends at USD 94 million, charges a 1 percent management fee on year-end assets, and has a high-water mark of USD 88 million, the fee basis before performance fees is USD 93.06 million. The gain above the high-water mark is USD 5.06 million.
The most reliable exam habit is to label the base for each fee before calculating.
Master Level I with our CFA Course
107 lessons · 200+ hours· Expert instruction
Related Questions
How do I map a CFA Ethics vignette to the right standard?
When does a duty to clients override pressure from an employer?
Do conflicts have to be disclosed before making a recommendation?
Why do CFA Ethics answers focus so much on the action taken?
What does a high-water mark actually do in a hedge fund fee calculation?
Related Articles
Join the Discussion
Ask questions and get expert answers.