The high watermark can be used in performance-based asset management fees. It ensures that investors do not have to pay a performance-based fee for poor performance. First, the highest cumulative historical return is determined. This peak is used as a benchmark for the asset manager’s future performance. As soon as the peak is exceeded, performance fees are charged to the investor, usually in the form of a percentage (e.g. 10%) of the increase in value of the asset (e.g. hedge fund) within a period.