Question: Consider a hedge fund whose annual fee structure has a fixed fee and an incentive fee with a high-water mark provision. The fund manager earns

Consider a hedge fund whose annual fee structure has a fixed fee and an incentive fee with a high-water mark provision. The fund manager earns an incentive fee only if the fund is above the high-water mark of the maximum value since the inception of the fund. Discuss the positive and negative implications of the high-water mark provision for the investors of the hedge fund.

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