The incentive levy that tethers a manager’s payday to portfolio gains rather than asset bulk. Hedge funds commonly charge a fixed percentage of profits above a high-water mark, resetting only when new peaks overtake past losses; some add a hurdle anchored to cash returns or short-term Treasuries to prove value creation. Private-credit and infrastructure mandates may swap in catch-up tiers where the manager races to a negotiated split after clearing a preferred threshold.
Calculation mechanics respect real-time deposits and withdrawals through daily equity curves, crystallising at quarter- or year-end with true-ups for mid-period flows. Regulators scrutinise disclosures around gross-to-net drag, claw-back safeguards, and the treatment of illiquid appraisal gains that might evaporate before cash is realised.
