TY  - JOUR
AU  - Goetzmann,William N.
AU  - Ingersoll,Jonathan, Jr.
AU  - Ross,Stephen A.
TI  - High Water Marks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6413
PY  - 1998
Y2  - February 1998
UR  - http://www.nber.org/papers/w6413
L1  - http://www.nber.org/papers/w6413.pdf
N1  - Author contact info:
William N. Goetzmann
School of Management
Yale University
Box 208200
New Haven, CT 06520-8200
Tel: 203/432-5950
Fax: 203/432-3003
E-Mail: william.goetzmann@yale.edu

Jonathan E. Ingersoll, Jr
PO Box 208200, New Haven, CT, 06520-8200
E-Mail: jonathan.ingersoll@yale.edu

Stephen A. Ross
MIT Sloan School of Management
100 Main Street, E62-616
Cambridge, MA 02142
Tel: 617/258-8371
Fax: 203/772-1365
E-Mail: sross@mit.edu
AB  - Incentive fees for money managers are frequently accompanied by high-water mark provisions that condition the payment of the performance fee upon exceeding the previously achieved maximum 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 cost of the high-water mark contract under certain conditions. Our results provide a framework for valuation of a hedge fund management company.
ER  -