Performance fee
A share of returns above the high water mark, set by the asset manager (hypothetically 20% to 30%). Crystallizes monthly.
What "above the high water mark" means:
The high water mark is the highest NAV per share ever reached at a crystallization moment. The performance fee only applies to gains above that mark.
Vault rises from $1.00 to $1.10. High water mark moves to $1.10. Performance fee charged on the $0.10 gain. Vault then falls to $1.05 and recovers to $1.08. No fee; still below the $1.10 mark.
Only when the share price exceeds $1.10 again does a new performance fee apply, and only on the portion above $1.10.
This prevents asset managers from being paid twice on the same gain.
When it crystallizes:
Crystallization is when accrued performance fee is realized and paid out. On MakeBanc it happens monthly, aligned with the monthly redemption window.
The high water mark means asset managers are never paid twice for the same gain, and monthly timing keeps unpaid amounts from accumulating into a large receivable.
How crystallization works:
At each monthly crystallization:
- Calculate the NAV per share change since the last crystallization.
- Check whether current NAV exceeds the high water mark.
- If yes: the asset manager's performance fee rate applied to the gain above the mark, across all eligible shares.
- The performance fee is paid out to the asset manager, less MakeBanc's payment processing fee (see below).
- Update the high water mark.
If NAV is below the mark at crystallization, no fee is paid. The mark doesn't change.
MakeBanc's payment processing fee:
This is not a split. The performance fee is the asset manager's. When MakeBanc collects and pays out that fee on the asset manager's behalf, it charges a payment processing fee on the amount collected. The rate depends on the asset manager's tier (see The Tier Program).
The payment processing fee comes out of the asset manager's performance fee, never out of what you allocated. You pay the manager's stated rate regardless.
Redemptions and crystallization:
Redemptions are processed monthly. There is no mid-month redemption. Your redemption settles in the monthly window, at which point any performance fee on the gains your shares earned is settled too. There is no fee arbitrage from timing; the math settles at the monthly window.
Losses:
If NAV is below the high water mark at the monthly crystallization, no performance fee is paid. The vault must recover past the mark before performance fee accrues again. This is the protective function of the high water mark.
Who sets the rate:
The asset manager does. MakeBanc does not set or cap it. The examples in these docs use a hypothetical range of 20% to 30%.
Traditional hedge funds charge "two and twenty": a 2% management fee and a 20% performance fee. On MakeBanc there is no management fee; you pay a 1% platform fee plus the manager's performance fee.
For allocators, the alternative is a hedge fund where the performance fee sits alongside opaque fees that often exceed 1% in aggregate. Here, each vault's rate is stated before you allocate.