High water mark

#1

Please clarify The below doubts regarding High Water Mark.

  1. Is it calculated for every subscriber seperately at every month end from his/her subscription date & generate a bill? Or it is done at strategy creator level?
  2. Is it calculated on month to month basis or cumulative performance of previous month’s will be considered while calculating? How can position size of the funds deployed from subscriber is going to effect the payouts to strategy creator.
    (Like, Loses with big position & gains with small position).
  3. What if a strategy performed poorly in previous month? Performs well in current month, for a person joins the current month gains good profit. Is high water mark concept going to charge the full performance fee or any cut for the previous month under performance?
#2

Hi Sandeep,

So if you have paid for x amount of profit, next profit sharing amount will be calculate on gross profit after x (current profit - x). This is based on gross profit before the deductions for that month.

For example, the first month your strategy made a profit of 1000 and the profit sharing is 20% then you will be invoiced 200. The next month the strategy makes a profit of 500, Now you will be invoiced 20% of 500 which is 100 and not 20% of 1500.
So if a user made 1 lakh rupees profit and you charged him Rs.20000 fees (20%) … so high watermark has been set at 1 lakh

next user lost Rs.20000 … so there will be no invoice

next user made Rs.50000 … Here the invoice will be only on the new profit (Rs.30000) and you can invoice Rs.6000 on it not on the full 50000 … now the high watermark has been set to Rs.1.3 lakhs (80000 + 50000).

Source: From Umesh Ranglani.