- 26 Oct 2023
- 3 Minutes to read
- Updated on 26 Oct 2023
- 3 Minutes to read
Darwinex Zero pays a 15% performance fee based on the return achieved with the capital allocated, using the HWM (high-water mark) method.
How is it calculated?
The calculation depends on two elements.
- The high-water mark
- The time period (a quarter)
1. The high-water mark
The high-water mark, or HWM, is a widely used concept in the asset management industry as a reference for the fees that managers should receive.
Using this method we ensure that they only receive fees for the profits they have actually generated and that this does not overlap with profits from previous time periods / avoiding paying performance fees for the same performance twice.
Let's look at an example of a graph showing the progress of a DARWIN's quote. For simplicity, let's imagine that the investor has remained invested for 3 quarters*.
High-water mark is calculated based on the net profits generated since their very first allocation in a DARWIN, and not based on the DARWIN's quote or the return in percentage.
In the graph, we can see how the HWM is calculated as the months go by.
In the third month, the HWM1 is calculated for the profit generated in this quarter. In this case, $10,000 of profit would have been made (and, consequently, $1,500 of performance fees would be paid).
In the following quarter, no new HWM would be generated, since €7,000 would have been lost in this quarter and the start-up profit would have been reduced to €3,000. However, at the end of the third quarter, HWM1 is exceeded again by €1,000, so a new high water mark is established: HWM2. Performance fees would thus be paid for the difference between HWM2 (€11,000) and HWM1 (€10,000), i.e. €1,000 in additional profit and €150 in performance fees.
In order to maximize the performance fees to be received from DarwinIA assignments, if your current allocations expire with losses, to avoid having to recover from those losses to exceed your HWM, this loss would be filled, so that any future assignments would start at the same level as your last watermark.
This way, you don't have to worry about your HWM in case you receive allocations again, as any profit made on future allocations will guarantee you performance fees. Please note that all your current allocations have to expire for this reset to occur, i.e. it will not take place as long as there are active allocations.
Let's suppose there are 3 non-simultaneous allocations: 1 allocation from month 0 to month 3, another allocation from month 3 to month 6, and a third from month 6 to month 9.
Following the previous example, in Darwinex Zero, the HWM would have been reset at the end of the second quarter: the €7,000 of losses would be added as HWM reset, so that for the third allocation, your accumulated profits with the DarwinIA capital at the initial moment of receiving the allocation would be €10,000 (the equivalent of your last HWM). Thus, unlike what would happen with an investor, with a profit of 8,000€ in the last quarter, you would receive performance fees for those 8,000€. In the case of an investor, as you can see in the explanation at the beginning of the article, you would have been paid for the difference between HWM2 (€11,000) and HWM1 (€10,000), i.e. €1,000 of additional profit and €150 of performance fees.
2. The time period (a quarter)
At Darwinex Zero performance fees are charged per DARWIN on a quarterly basis, i.e. every three months. The quarter starts when the first allocation has been received in the DARWIN. Successive allocations have no effect on the starting date of the quarter, as this is set uniquely based on the first allocation date.
Each time the quarter ends, if the previous high-water mark has been surpassed, 15% of the net profit (closed profit + open profit) generated in the quarter will be paid to the trader.
Where can I see this?
All the information available relating to current Capital under Management, P&L and HWM can be found at Payments->Allocations: