Performance fee
The part of a manager's pay tied to results above an agreed level: a share of the excess rather than of the size of the fund's property.
How to read the number
The design is meant to align interests, but it is asymmetric: the manager shares in the profit and not in the loss, which is why the conditions limiting that asymmetry matter.
When the metric lies
Without a high-water mark the fee is charged again for recovering from a fall — twice for the same result. A hurdle fixed at a set level rather than to a market benchmark turns a fee for success into a fee for rising rates.
Also known as: success fee