2.60 Process High Water Mark Maintenance

This topic provides the systematic instructions to maintain the details related high water mark for a fund.

High Water Mark (HWM) is defined to determine the performance fee associated with a hedge fund. High Water Mark mechanism ensures that the Fund Managers do not get the performance fee when the fund has negative performance compared to the previous performance fee period.

The Fund Manager receives performance fee only on increases in Net Asset Value of the fund, in excess of the highest net asset value High Water Mark (HWM) it had previously achieved.

The following example illustrates performance fee calculations for hedge funds having High Water Marks:

Example: Assume that a fund launched at a net asset value of $100 per share, rose to $120 in its first year. In this case performance fee would be payable on the $20 return on each share. If in the next year the share value drops to $110, no performance fee will be paid. If in the third year the share value rises to $130, performance fee will be calculated only on the $10 return from the previous highest value, $120 (high water mark), rather than on the full return from $110 to $130.

1. On Home screen, type UTDHWM in the text box, and click Next.
   The High Water Mark Maintenance screen is displayed.

   Figure 2-70 High Water Mark Maintenance

   
   

   
   Description of "Figure 2-70 High Water Mark Maintenance"

   
   
2. On High Water Mark Maintenance screen, click New to enter the details.
   For more information on fields, refer to the field description table.

   Table 2-63 High Water Mark Maintenance - Field Description

   Field	Description
   Fund ID	Alphanumeric; 6 Characters; Mandatory Specify the fund Id for which you wish to maintain high water mark or select the fund Id from the option list provided.
   Fund Name	Display The name of the selected fund gets displayed here.
   Effective Date	Date Format; Mandatory Specify the date on which the high water mark value becomes effective for the fund. You can also select the date by clicking the Calendar icon provided.
   High Water Mark	Numeric; 27 Characters; Mandatory Specify the high water mark value for the selected fund, beyond which if the fund value increases, the performance fee gets collected. You need to capture this value only for the first valuation period for the fund. For subsequent periods, the system will automatically populate the highest net asset value previously achieved by the fund.

Operations on High Water Mark

3. New – An unauthorized record will be created. If you have rights for Authorization, the record will be authorized
4. Modify – An unauthorized record can be modified by the maker (edit rights required)
5. Delete – An unauthorized record can be deleted by the maker. You can not delete the unauthorized record created by amendment (delete rights required).
6. Authorize – An unauthorized record can be authorized by anyone other than the maker (authorize rights required)
7. Amend – You can amend an HWM record; however the amendment will not be allowed if fund price is maintained for the day later than or equal to HWM effective date.