High watermark

This one is not written up yet

The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.

Written up from the same chapter

• Catch up clauseThe waterfall step that pays the manager a set share — often 100% — of the profit left after investors receive their capital and hurdle, until the manager reaches its agreed share of total profit.
• ClawbackAn investor right to recover carried interest already paid to the manager on early successful exits, when later failed investments mean the manager was overpaid across the fund's whole life.
• Co-investmentInvestment by a manager, sponsor or investor of a Category I or II AIF directly into an investee company that the AIF is itself investing in, alongside the fund rather than through it.
• Fiduciary capacityThe legal standing in which an investment adviser or portfolio manager must act — putting the client's interest ahead of its own and disclosing every conflict of interest as it arises.
• Fit and proper personThe character and record test in Schedule II of the SEBI (Intermediaries) Regulations, 2008 that an AIF's applicant, sponsor and manager must satisfy for registration and must keep satisfying afterwards.
• Hurdle rateThe minimum return that must accrue to investors before the manager earns any incentive fee — the threshold that turns a fund's profit into the manager's profit.