Hi Adrian, Thanks for your comment. My understanding is that the HWM typically only resets at the time the performance fee is paid. If it reset at the peak NAV during the applicable period, then that would solve the issue and I would be very happy to stand corrected. Perhaps others (Steve?) can chime in with their understanding. I'd suggest check the fine print in the PDS, but you'd probably have to go to the additional info booklet or even the Constitution...

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Thank you Steve for correcting and clarifying. The point I wish to make is that without individual HWMs, the more frequent the payment the more likely the allocation of the fee among individual investors is fair. For a better illustration let's continue the example and the assumption of annual payments. The HWM would reset at $1.50. And let's say the Fund's gross price at the end of the following year is $1.70 so the accrued performance fee of 4c is paid and the resulting net value is $1.66. Now the investor we referred to previously that paid $1.80 originally would incur the fee despite incurring an investment loss. However had the fee been paid semi-annually (at the $1.80 level), the resetting of the HWM at that level would mean no performance fee would be incurred and the end unit price would be $1.70. Correct?

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Steve, thanks for your comments. I respectfully disagree that any points are incorrect. Applying a $1.35 end price and backing out the performance fee would equate to a $1.6875 gross price, or a 68.75% gross return over the year. But the assumption is a 50% gross return over the year. I agree that if the fee had been paid at 31 December the gross and net unit prices would both be $1.80, and the end price would have been $1.35 and the investor's loss would also be 25%. But because the premise of the example is annual performance fee payments, the correct base for the -25% gross return is $2.00, not $1.80. It illustrates that the annual payment frequency reduces the 25% loss at the gross level to 22% at the net level by the unwinding of the performance fee. A good thing. But it also shows that the investor pays a $0.10 performance fee for a $0.40 loss. As you correctly state, a half yearly payment period would avoid this. The point is that less frequent payment of performance fees is always optimal for fund investors when assessed as a whole, but not necessarily for each individual investor in the fund.

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