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

Consider a hedge fund whose annual fee structure has a fixed fee and an incentive fee with a high watermark provision. The fund manager earns an incentive fee only if the fund is above the high watermark of the maximum portfolio value since the inception of the fund. Required: Assess the positive and negative implications of the high watermark provision for the investors of the hedge fund.

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