Tools · Fee drag
What the fees take, compounded.
A fee is charged once a year; its effect compounds for as long as the investment runs. This compares gross and net growth under a management fee, a performance fee, a high-water mark and an optional hurdle, and shows what the difference adds up to.
Calculator
This page is showing a worked example. The figures below use a 10.0% gross annual return, a 2.0% management fee, a 20% performance fee and no hurdle, over 10 years. Enable JavaScript to enter your own figures; the table, chart and method on this page do not need it.
- Gross, 100 becomes
- 259.4
- before any fee
- Net, 100 becomes
- 183.2
- 6.2% a year, compounded
- Taken in fees
- 50.1
- per 100 invested, over 10 years
The gap widens every year even when the fee rate never changes, because each year's fee is charged on a balance that the previous years' fees have already reduced.
Year by year
Where the difference comes from.
The worked example: 10.0% gross a year, a 2.0% management fee, a 20% performance fee, no hurdle. Values are per 100 invested.
| Year | Gross | Net | Management | Performance | Fees to date |
|---|---|---|---|---|---|
| 1 | 110.0 | 106.2 | 2.20 | 1.56 | 3.8 |
| 2 | 121.0 | 112.9 | 2.34 | 1.66 | 7.8 |
| 3 | 133.1 | 119.9 | 2.48 | 1.76 | 12.0 |
| 4 | 146.4 | 127.4 | 2.64 | 1.87 | 16.5 |
| 5 | 161.1 | 135.3 | 2.80 | 1.99 | 21.3 |
| 6 | 177.2 | 143.8 | 2.98 | 2.11 | 26.4 |
| 7 | 194.9 | 152.8 | 3.16 | 2.24 | 31.8 |
| 8 | 214.4 | 162.3 | 3.36 | 2.38 | 37.5 |
| 9 | 235.8 | 172.4 | 3.57 | 2.53 | 43.6 |
| 10 | 259.4 | 183.2 | 3.79 | 2.69 | 50.1 |
Read the last two columns together: the management fee is charged whatever happens, while the performance fee only appears in years that finish above the high-water mark.
Method
The convention used here.
Fee structures differ in their detail, and the detail changes the answer. This page uses one common convention and states it rather than hiding it.
- Management fee. Charged once a year on the year-end value, after the year's return and before any performance fee.
- Performance fee. Charged on the gain above the higher of the high-water mark and the hurdle, after the management fee has been taken.
- High-water mark. The highest net value reached at any previous year end. No performance fee is charged until that level is passed again, so a loss must be recovered first.
- Hurdle. A hard hurdle: the performance fee applies only to the gain above the start-of-year value grown at the hurdle rate. A soft hurdle, where passing the hurdle makes the whole gain chargeable, gives a different and usually larger fee.
- What is not modelled. Monthly or quarterly crystallisation, equalisation between investors, entry and exit costs, transaction costs, tax, and money added or withdrawn during the period. Each of these moves the result.
Every figure on this page is one you have chosen or an illustration. None of them is a term of any KyperX Capital investment. This calculator is provided for general information only and is directed to wholesale and professional investors. It is not personal advice, and it is not an offer, invitation or recommendation to acquire any financial product. Investing involves risk, including the possible loss of capital. Past performance is not a reliable indicator of future performance.
Definitions
Terms on this page.
Each links to the glossary entry, which states the convention the term assumes as well as what it means.
- Management fee — charged on the amount invested, whatever the outcome.
- Performance fee — a share of the gain.
- High-water mark — so a fee is not charged twice on the same gain.
- Hurdle rate — a return that must be cleared first, hard or soft.
- Annualised return — the compound rate behind a multi-year figure.
Questions
Common questions.
What is fee drag?
The difference between what an investment earns and what an investor keeps, once fees have been charged and the effect has compounded. It is larger than the headline fee rate over any long period, because every fee charged also removes the future return that money would have earned.
What is a high-water mark?
The highest value an investment has previously reached at a fee-charging date. A performance fee applies only to gains above that level, so after a loss no performance fee is charged until the earlier peak has been recovered. Without one, an investor can pay a performance fee twice on the same gain.
What is the difference between a hard and a soft hurdle?
Under a hard hurdle the performance fee applies only to the return above the hurdle rate. Under a soft hurdle, once the return passes the hurdle the fee applies to the whole gain, including the part below it. This calculator uses a hard hurdle.
Are these the terms of a KyperX Capital investment?
No. The structures on this page are illustrations. Investment terms are discussed directly with each client and are not published on this website.