Comments on: The High Water Mark(et): A potential lifesaver for underwater HF investors http://allaboutalpha.com/blog/2009/09/14/the-high-water-market-a-potential-lifesaver-for-underwater-hf-investors/ A finance blog about hedge funds, portable alpha and alternative investing. Mon, 13 Feb 2012 11:26:54 +0000 http://wordpress.org/?v=abc hourly 1 By: Rene Levesque http://allaboutalpha.com/blog/2009/09/14/the-high-water-market-a-potential-lifesaver-for-underwater-hf-investors/comment-page-1/#comment-204849 Rene Levesque Thu, 17 Sep 2009 13:56:50 +0000 http://allaboutalpha.com/blog/?p=6054#comment-204849 There are a few issues the investor should consider before maintaining or acquiring a position into a fund under its high water mark: 1. The likelihood of style drift is very real. Let's not kid ourselves, the managers want that performance fee and will be very tempted to undertake excess risk to derive excess returns, or engage into strategies (flavors of the day) that are not coherent with the core competency to reach the high water mark within a shorter time frame that the core strategy would suggest. 2. An analysis and attribution of the elements explaining why the manager is under the high water mark should be addressed. The systemic issues that affected the market should not be the only explanation. Does the manager truly deploy a hedge fund strategy? Did he "style drift" in the midst of the market mayhem? Was he selling volatility? Was he short Gamma? There are a few issues the investor should consider before maintaining or acquiring a position into a fund under its high water mark:

1. The likelihood of style drift is very real. Let’s not kid ourselves, the managers want that performance fee and will be very tempted to undertake excess risk to derive excess returns, or engage into strategies (flavors of the day) that are not coherent with the core competency to reach the high water mark within a shorter time frame that the core strategy would suggest.

2. An analysis and attribution of the elements explaining why the manager is under the high water mark should be addressed. The systemic issues that affected the market should not be the only explanation. Does the manager truly deploy a hedge fund strategy? Did he “style drift” in the midst of the market mayhem? Was he selling volatility? Was he short Gamma?

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