The fee on new profits earned by the fund for the period. For example, if the initial investment was US$1,000,000 and the fund returned 25% during the period (creating profits of US$250,000) and the fund has an incentive fee of 20%, then the fund receives 20% of the US$250,000 in profits, or US$50,000.
The fee charged by a fund usually expressed as a percentage of the differential of the new high in equity minus prior equity high.
A fee charged by a commodity trading advisor that is typically calculated each quarter as a percentage of net new trading profits in the client's account.
A fee paid as an incentive to the general partner of a hedge fund or fund of funds, the amount of which depends on his/her performance. Also called a performance fee.
Applies to fee structures where the amount of the fee that is charged is determined by the performance of the real estate assets under management
The charge -- typically 20% -- that a fund manager assesses on gains earned during a given 12-month period. For example, if a fund posts a return that is 40% above its hurdle rate, the incentive fee would be 8% (20% of 40%) -- provided that the high-water mark does not come into play.
