A hedge fund with net asset value of $62 per share currently has a high water mark of $66. Is the value of its incentive fee more or less than it would be if the high water mark were $67?

The incentive fee will be less valuable in a situation where the high- water mark is the amount of $67, instead of the amount of $66 which means that when we have a high-water mark of the amount of $67, the net asset value of the fund have to reach $67 before the hedge fund can assess the incentive fee.

Explanation:

The incentive fee will be equal to 20% of the amount of the hedge fund’s profits which will be beyond a specific benchmark rate of return and in a situation where a fund has had or

experienced some losses in the past, this means that the fund may be unable to charge the incentive fee unless the fund is above its previous high water mark.

Therefore the incentive fee will be less valuable in a situation where the high- water mark is the amount of $67, instead of the amount of $66 which means that when we have a high-water mark of the amount of $67, the net asset value of the fund have to reach $67 before the hedge fund can assess the incentive fee.

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