A level of performance that ensures a fund will only take fees on profits earned if it passes a minimum level. Eg if £10m is made in year one, but then the fund falls by 50%, leaving £5m; if in year two, the fund returns 100%, it brings the investment value back to £10m. If a fund has a high water mark it will not take fees on the second year’s return since the investment has not grown. The fund will only take incentive fees if the investment grows above the initial level of £10m.