Performance fee
An additional fee a fund manager charges only when fund performance exceeds a defined benchmark or hurdle rate, typically subject to a high-water mark.
A performance fee is an extra layer of fee that a fund manager charges only when fund returns exceed a defined benchmark or hurdle. Common structures: a percentage of returns above the NZ Official Cash Rate plus a margin, above an equity benchmark like the S&P/NZX 50, or above a fixed hurdle (e.g. 10% p.a.).
Most NZ funds with performance fees apply a "high-water mark" — the manager only earns a performance fee when the fund's value exceeds its previous peak after the last performance fee was charged. This prevents charging twice for recovering past losses.
Performance fees are disclosed separately from the annual fund charge in the QFU and PDS. Two funds with the same headline annual fund charge can have very different total cost-to-investor outcomes if one charges performance fees and the other does not.
Real examples from NZ fund disclosures
Verbatim quotes from NZ retail managed-fund disclosure documents lodged on the FMA Disclose register.
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Castle Point Ranger / 5 Oceans Funds
"A performance-based fee is payable if, in respect of each half-year period ending 31 March and 30 September, the investment performance of the Ranger Fund exceeds the NZ Official Cash Rate + 5% (hurdle rate of return), 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
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"15% of returns above 10% hurdle rate (after deduction of base fund fee but before tax and performance fee), subject to high water mark, with a performance fee cap of 0.95% of average NAV."
— Milford Investment Funds PDS, June 2025
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"10% of the excess return above the hurdle rate of return (The Official Cash Rate plus 5%), subject to beating the high water mark. Performance-based fees are capped at 2% of each fund's average net asset value per year."
— Fisher Funds Managed Funds PDS, March 2026
Related terms
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AFC · Total fund charge · MER
Annual fund charge
The total ongoing percentage charge paid out of a NZ managed fund each year — covering management fees, supervisor/custodian fees, audit, and other operating costs.
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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.
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hurdle benchmark · performance-fee benchmark
Hurdle rate
The benchmark return that a fund's performance must beat before a performance fee can be charged. Common NZ shapes: OCR + a margin, an equity index, or an absolute % per year.
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QFU · Fund Update
Quarterly Fund Update (QFU)
A standardised FMA-mandated quarterly report each NZ retail managed fund publishes, summarising fees, returns, risk indicator, asset mix, top-10 holdings and fund size.
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PDS
Product Disclosure Statement (PDS)
The headline legal document a NZ managed fund or KiwiSaver scheme provides to retail investors, summarising the fund, fees, risks, and how to invest.