“In 2008, many had all but written off the Chicago hedge fund and its founder, Kenneth C. Griffin,” writes the New York Times. “The firm needed gains of 100 percent or more to ever recover. Until then, it would not be able to charge the coveted performance fee, the lifeblood of these private partnerships.”
The firm has been building its returns since that dark hour, its efforts culminating in returns of more than 20% in 2011. Now, Citadel has officially cleared its high-water mark, and it is off to a good start for 2012, returning 2.5% year-to-date.
Hedge funds typically charge fairly high fees for managing the funds, at least relative to other types of investments. The high-water mark ensures hedge fund managers do not get paid these large sums when performance is poor. The high water mark is the amount the hedge fund manager must make in order to receive a performance bonus.
Citadel informed investors of its success in a letter dated January 20, 2012 (read the complete letter here).