SaxoSelect Performance Fees

Performance Fee Explained

The purpose of the performance fee is for the investor to (mostly) pay for their managed portfolio service upon attaining positive performance. This way the investor and the manager’s interests are aligned.

A performance fee is paid to the manager based on the portfolio value surpassing the “high watermark” (HWM).

The HWM is the highest value your portfolio has ever realised, after other costs have been deducted and removing the effects of cash additions or withdrawals. This value is based on either the initial investment value, or any quarter-end value during the time you are invested. Intra-quarter values are not considered, except for when the initial investment is made or when you exit the investment.

This means each investor incurs their own HWM as they invest at different points in time.

A performance fee is only incurred if the manager exceeds the HWM, and is charged at quarter-end or upon exiting the managed portfolio. The fee charged is based on the added value attained between the prior HWM and the new HWM or exit value, net of all other costs.

  • Q1 End: Investor 1 invests.
  • Q2 End: Investor 1 watermark is reviewed and increased. The performance fee is charged.
  • Q3 End: The watermarks for Investor 1 and Investor 2 are reviewed and maintained. No performance fees are charged.
  • Q4 End: The watermark for each investor is reviewed. Investor 1 and Investor 2 watermarks are maintained and no performance fees are charged. Investor 3 watermark is increased and a performance fee is charged.

The Performance fee considers cash additions and withdrawals to appropriately adjust the high water mark. The adjustment of the HWM is dependent on the direction of the flow (addition or withdrawal). If you are adding to your portfolio, we simply add that value to the high water mark and any benefit of having additional capital for producing returns is reflected in an increase in a new HWM at quarter-end. If you are withdrawing from the portfolio then we reduce the HWM proportionately. This is because the simple subtraction method actually increases the HWM on a percentage return basis and unfairly punishes the strategy manager. We can illustrate this below:

Current High water mark: USD 45,000
Current Value of portfolio: USD 40,000
Distance from HWM: 12.5% return required to hit HWM (USD 45,000/40,000)
Capital outflow incurred: USD 20,000
Value of portfolio after cash flow: USD 20,000

Correct Method New Adjusted HWM: 20,000 x 12.25% return = USD 22,500.
Incorrect Method New Adjusted HMW: 45,000 – 20,000 = USD 25,000. This would demand a 25% return to reach HWM.


N.B. For simplicity we have not shown the service fee and trading costs, which are in fact deducted to calculate the HWM.

When adjusting the HWM for cash flows, we take the prior quarter-end HWM, and adjust it on the day the cash flow is incurred, to become an adjusted HWM. Should another cash flow be incurred, then we take the adjusted HWM and re-adjust (and the process repeats until quarter-end). It is important that we do this, rather than wait until quarter-end and amend the HMW based on the total cash adjustments over the period. This is because it factors in the capital available to produce returns throughout the quarter and prevents an inflated HWM at the quarter-end.