On a €100,000 portfolio, a manager charging 20% of gains can collect €10,960, or 36.5% of the €30,000 increase, when a decline followed by a recovery is billed as a gain. The high water mark, or performance threshold, prevents this mechanism by retaining the highest value on which a fee has already been paid. The order in which fees are calculated also matters: when the performance fee is charged before management fees, the investor pays €400 more in the example presented. ESMA guidelines have required performance to be calculated after all costs since January 2021 for UCITS funds and certain alternative funds open to the public. Before subscribing, investors should check the fee order, the crystallization frequency, whether the threshold can be reset and whether each investor has an individual threshold based on their entry price.
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