What is the hurdle rate & high water mark ?
Hurdle rate and high water mark are two types of benchmarks that hedge funds can set as requirements for collecting incentive or performance fees from investors.
A high water mark is the highest value that an investment fund or account has ever reached. A hurdle rate is the minimum amount of profit or returns a hedge fund must earn before it can charge an incentive fee.
For instance, a fund might set up a 5% hurdle rate, allowing it to collect incentive fees only during periods when returns are higher than this amount. If the same fund also has a high water mark, it cannot collect an incentive fee unless the fund's value is above the high water mark and returns are above the hurdle rate.
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