1. What is Highwater Carry?

Highwater carry is a performance fee structure where fund managers only receive their carried interest (percentage of profits) on returns that exceed the highest previous value of the fund (the high water mark). This protects investors from paying performance fees on recovered losses.

2. How Does the Calculator Work?

The calculator uses the Highwater Carry formula:

Where:

• \( Profits \) — Current value of the investment (USD)
• \( High\ Water\ Mark \) — Highest previous value of the investment (USD)
• \( Carry\ Percentage \) — Percentage of profits paid as carry (e.g., 20%)

Explanation: The carry is only calculated on profits that exceed the previous highest value of the investment.

3. Importance of High Water Mark

Details: The high water mark ensures investors don't pay performance fees for the same performance twice. It prevents managers from receiving carry on recovered losses before earning new profits.

4. Using the Calculator

Tips: Enter current profits in USD, the high water mark in USD, and the carry percentage (typically 20%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is high water mark important?
A: It protects investors from paying performance fees on recovered losses, ensuring fees are only paid on genuinely new profits.

Q2: What's a typical carry percentage?
A: Most private equity and hedge funds charge 20% carry, though some may charge 15-25% depending on the fund.

Q3: How is high water mark determined?
A: It's the highest net asset value (NAV) the fund has previously achieved after accounting for all fees.

Q4: What happens if profits don't exceed HWM?
A: No carry is paid until the fund exceeds its previous high water mark.

Q5: Does this calculator account for hurdle rates?
A: No, this is a basic high water mark calculator. Some funds may also have preferred returns (hurdle rates) before carry applies.