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HWM · high water mark

High-water mark (HWM)

The highest historical unit price a fund has reached after performance-fee crystallisation. A manager can only earn a new performance fee on gains above this mark — preventing double-charging on the same return.

A high-water mark (HWM) is the highest unit-price (or net asset value per unit) the fund has reached, measured at each performance-fee crystallisation point. After a performance fee is paid, the HWM resets to the new unit price; thereafter, the manager can only earn another performance fee on gains above that new HWM.

The point of a HWM is to prevent the manager charging two performance fees for the same gain. Without one, if a fund rose 20%, fell 15%, and rose back to the original peak, the manager could in principle collect a performance fee on each up-leg. A HWM blocks the second fee until the fund clears the previous peak in NAV terms.

The variant matters. A **perpetual high-water mark** never resets — the strongest investor protection. An **annual-reset HWM** resets each financial year, which dilutes the protection in a multi-year drawdown. Many NZ MIS funds with performance fees use perpetual HWMs explicitly; others are silent or describe a reset mechanism.

Real examples from NZ fund disclosures

Verbatim quotes from NZ retail managed-fund disclosure documents lodged on the FMA Disclose register.

  • Castle Point Ranger / 5 Oceans (perpetual HWM)

    "subject to a perpetual high-water mark. The high water mark cannot be reset by us and is the same for all clients."

    — Castle Point PDS, April 2026

  • Milford Active Growth (HWM with cap)

    "subject to high water mark (the Fund's previous highest ever net asset value per unit, exclusive of all distributions paid since the last crystallisation date), with a performance fee cap of 0.95% of average NAV."

    — Milford Investment Funds PDS, June 2025

  • Lighthouse Global Equity (benchmark-relative HWM)

    "30% of the Fund's performance, after the Fixed Fund Charges and any GST, but before the performance fee and tax, that is above the Hurdle Rate of Return (the return of the MSCI All Country World Net Index, measured in New Zealand dollars)."

    — Lighthouse Investment Funds PDS, April 2026

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