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High-Water Marks and Hedge Fund Management Contracts

Author

Listed:
  • William N. Goetzmann

    (Yale University, School of Management)

  • Jonathan E. Ingersoll Jr.

    (School of Management)

  • Stephen A. Ross

    (Sloan School of Management)

Abstract

Incentive or performance fees for money managers are frequently accompanied by high-water mark provisions which condition the payment of the performance fee upon exceeding the maximum achieved share value. In this paper, we show that hedge fund performance fees are valuable to money managers, and conversely represent a claim on a significant proportion of investor wealth. The high-water mark provisions in these contracts limit the value of the performance fees. We provide a closed-form solution to the high-water mark
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • William N. Goetzmann & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2001. "High-Water Marks and Hedge Fund Management Contracts," Yale School of Management Working Papers ysm186, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm186
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    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=270290
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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