All Managed Accounts operate according to the fee schedule detailed below:
Monthly Performance Fee = 20% of net new
profits
Annual Management Fee = 2%*
*Fee is charged monthly at 0.1667% per month
The 20% performance fees are taken on a high-watermark basis. A high watermark is the previous high in the account-participant's account (adjusted for deposit, withdrawals, and fees). It ensures that the fees are only deducted based on new performance, rather than just recovery from poor performance. In other words, if an account loses money over a period, the account must first recoup previous losses and then any profit above the high watermark is subject to a 20% performance fee. For example (assuming no management fees for simplicity):
Account "A" opens with an initial investment of $5,000.
At the end of the first month, account "A" makes $300, bringing its equity up to $5,300, on which there is a 20% performance fee of $60 deducted; correspondingly, the watermark is raised to $5,240 ($300 profit less a $60 fee).
Then, at the end of second month, it loses $400, lowering its equity to $4,840, on which a performance fee is not charged.
At the end of third month, account "A" makes $200, bringing its equity up to $5,040, on which no performance fees are charged because the watermark was not reached.
Lastly, at the end of the fourth month, it makes $300, bringing the equity up to $5,340, which is a new-equity high by $100 over the watermark of $5,240 in the first month, on which there is a 20% performance fee of $20 deducted.
The performance fees are thus influenced by the exact date of entry into the account. Hence, participants who enter into the account on different dates will have different watermarks. Watermarks are based upon the actual returns in and date of entry for each account, thereby resulting in different watermarks for individual accounts. Since individual account returns will vary based upon the entry date into the account, the performance-fee calculations are performed on a per-account basis.
