- When is Profit Share paid?
- High Water Mark Rule
- Profit share calculation for partial withdrawal of profit
What is Profit Share?
Profit share is the percentage of profits rewarded to the Strategy Manager for positive performance.
- The maximum profit share a Strategy Manager can charge investors is 30%.
- Profit share will be charged only if there's profit on the Invest Account.
- Profit share is paid to the Strategy Manager's wallet.
When is Profit Share paid?
When there's profit on the Invest Account and any of the following happen:
- Per month / monthly interval - 30 days from the initial deposit, the Profit Share is calculated by comparing the equity on the investor's Invest Account at the beginning and end of the period.
- The investor requests a withdrawal before the end of the monthly interval.
- The investor closes the Invest Account.
- When the Strategy Manager closes the account, which results in the Invest Account being closed automatically.
High Water Mark Rule
The high water mark rule ensures that the Strategy Manager doesn't get paid large profit shares for poor performance. If the Strategy Manager loses money over a period, they must get the funds above the high water mark level before receiving a profit share.
Let's consider this example:
On 12 April 2022, an investor deposits $10,000 and selects a Strategy Manager who charges a Profit Share of 20%. On 12 May 2022, a month later, the investor has a balance of $15,000, equating to a $5,000 profit. As the Profit Share is set at 20%, the investor pays the Strategy Manager 20% of $5,000 = $1,000.
By 12 June 2022, the investor's balance has dropped to $9,000 as the Strategy Manager has made losses. As there's no profit on the account, there's no Profit Share to pay to the Strategy Manager.
On 12 July 2022, the investor's equity has grown to $11,000. Based on the high water mark rule, the profit is calculated on the difference from the investor's initial deposit of $10,000 and not the $9,000 equity from the previous period. As such, the 20% Profit Share payable to the Strategy Manager is applied on $1,000 ($11,000 - $10,000) and is, therefore, equal to $200.
Essentially, the high water mark rule gives the investor reassurance that any past accumulative losses on the Invest Account need to be taken into account when calculating Profit Share for the Strategy Manager, and will only be due once the performance exceeds the high water level.
Profit share calculation for partial withdrawal of profit
It's possible to withdraw part of the funds from the Invest Account and continue to invest with the remainder of the funds. If the account is in profit during withdrawal, you'll need to pay part of the Profit Share as shown on the withdrawal page.
The calculation for the Profit Share for a partial withdrawal is shown below:
Let's look at the following as an example.
On 1 January 2022, an investor deposits $1,000 to an Invest Account to follow a Strategy Manager who charges a Profit Share of 20%.
On 13 January 2022, the investor has a total equity of $2,000 and decides to withdraw $1,000 from the account. At the partial withdrawal, the Profit Share is calculated as:
Profit Share = (Withdrawal Amount / Account Equity) x Profit Share (%) x Profit Amount
Profit Share = ($1,000 / $2,000) x 20% x $1,000
Profit Share = 0.5 x 20% x $1,000
Profit Share = $100