High Water Marks Take Center Stage in a Year of Weak Hedge Fund Performance

In what increasingly looks like the worst year for the hedge fund industry in nearly two decades, some investors are wondering if this could be a good time to bargain for better investment terms. Faced with a wave of redemption requests, funds have taken various approaches to retaining investors. One increasingly common approach is reducing fees in exchange for a longer lock-up. Another approach, slightly less common, involves requests from new investors (or from current investors contemplating new investments) to come in under the terms of an old high water mark. Such arrangements can delay, sometimes substantially, the date on which a hedge fund manager laboring under a high water mark will next earn its performance fee.

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