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What is a mutual fund “high water mark” and how does it affect performance fees?
With the caveat that you should always read the fine print... Generally, the high water mark is the absolute highest mark at end of any quarter (sometimes month) over all the quarters (months) in the past.  Intra-quarter marks don't matter.   So, in your example the mark at the end of the second quarter would only be the new HWM if that mark is higher then the mark at the end of every previous quarter.  Again, what happened in the middle of of the second quarter doesn't matter. For hedge funds, the HWM may only be be from the date you started investing rather than over the whole history of the fund, but I would be surprised if that was true for any mutual funds.  Though, as I may have mentioned, it is worth reading the fine print.