What term describes new profits that activate a fund manager's ability to take an incentive fee?

The term that describes new profits that activate a fund manager's ability to take an incentive fee is known as a high-water mark. This concept is crucial in performance-based fee structures, particularly in investment funds. A high-water mark establishes the highest value that a fund has previously reached. If the fund's value drops, the fund manager must return to this peak level before they can receive additional incentive fees. This mechanism ensures that managers are rewarded for sustained performance over time rather than for short-term gains, as it protects investors from paying fees for recovery periods after losses. Therefore, the high-water mark serves as a benchmark for performance that must be surpassed to incentivize fund managers appropriately.