A performance fee is the cut a manager or strategy provider takes from the profit they make on your account — commonly 20% to 30% of the gains. You pay it only when the account grows, which sounds fair, and often is. The detail that decides whether it stays fair is the high-water mark: the rule that stops you paying twice for the same ground.
What it is
A performance fee is a percentage of the profit earned over a set period, paid to whoever runs the account — a managed-account manager, a PAMM operator, or a copy-trading provider. It sits on top of any fixed fee or spread mark-up. A typical structure is 30% of net new profit, charged monthly or quarterly. The moment it is taken is called crystallisation: that is when the fee is calculated and deducted from your balance.
The high-water mark
A high-water mark is the highest value your account has reached after fees. The manager earns a performance fee only on profit above that mark. If the account falls, they earn nothing until they have climbed back past the old peak — so you never pay a second fee for recovering ground you already paid on once.
Without a high-water mark, a manager can lose 20% of your money, make it back, and charge you a full fee on the "profit" of that recovery. You end up paying for a round trip to nowhere.
A worked example
Start with £10,000 and a 30% performance fee, crystallised monthly, with a high-water mark.
- Month 1 — the account grows to £12,000. Profit is £2,000, so the fee is £600. You keep £1,400, your equity is £11,400, and the high-water mark is set at £11,400.
- Month 2 — a bad month drops the account to £10,500. That is below the mark, so no fee is charged.
- Month 3 — the account recovers to £11,900. The fee applies only to the £500 above the £11,400 mark, so you pay £150.
Without a high-water mark, month three would be charged on the whole £1,400 gain from £10,500, which is £420. The high-water mark saved you £270 on one recovery alone.
A performance fee with no high-water mark is a fee on volatility, not on skill. If the structure lets a manager charge you for recovering their own losses, the "return" they quote is not the number you keep.
What to check
- Is there a high-water mark? If the term is missing from the agreement, assume there isn't one.
- What is the fee charged on — realised profit only, or floating equity including open trades? A fee on floating equity can be crystallised on a paper gain that later evaporates.
- How often does it crystallise? Frequent crystallisation with no high-water mark is the most expensive combination there is.
- Does the mark reset on withdrawals? They usually lower it proportionally, which is reasonable — but confirm it.
Why it matters
The headline return and the fee structure are two different numbers, and only one of them is yours. A strategy showing 40% a year can hand you closer to 28% after a 30% cut, and less again if the fee is charged in a way that ignores your drawdowns. Read the structure before you read the marketing.
The Karnek note
Karnek reads your live terminal, so you can watch the gross performance a manager's fee is charged against and check the maths against your own equity curve. It is read-only and can never trade or move money — it cannot deduct a fee, only show you whether the one you are charged adds up.
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Written and reviewed by the Karnek Research team. Last updated August 2026.
Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.