A “high-water mark” is defined as the highest previous value reached by a fund’s cumulative return, but it is best illustrated by an example.

Suppose an investor puts £1m (€1.1m) into the fund and, after three years, the value of this investment reaches £1.4m. The fund manager can charge performance fees of 20% of the £400,000 gain, or £80,000 over the course of these three years.