High-water mark
Definition · Level 8 · Risk & portfolio
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The highest equity or NAV level reached so far; drawdowns are measured from it, and hedge-fund performance fees are usually paid only on gains above it.
Example
Fund peaked at $120M and now sits at $108M: 10% below its high-water mark.
Where Tradecraft teaches it
Level 8 · Risk & portfolio, in the lesson “Drawdowns & compounding”: Recovery math, max drawdown, volatility drag, arithmetic vs geometric return and CAGR.
Related terms
- CAGRCompound annual growth rate: (End ÷ Start)^(1/years) − 1.
- CompoundingEarning returns on previous returns: wealth grows multiplicatively, (1 + r)^n, so small differences in annual return — or in fees and losses…
- DrawdownDecline in equity from a running peak to a later low, expressed as a % of that peak.
- Geometric returnThe constant per-period rate that produces the same ending wealth as the actual sequence of returns; always ≤ the arithmetic average.
- Max drawdownLargest peak-to-trough fall in equity over a period; the headline measure of how much pain a strategy inflicted.
- Volatility dragShortfall of the compounded return versus the simple average return caused by variance, roughly σ²/2 per period.