Performance fees

Darwinex Zero pays a 15% performance fee based on the return achieved with the capital allocated, using the HWM (high-water mark) method.

How is it calculated?

The calculation depends on two elements.

1. The high-water mark
2. The time period (a quarter)

1. The high-water mark
The high-water mark, or HWM, is a widely used concept in the asset management industry as a reference for the fees that managers should receive.

Using this method we ensure that they only receive fees for the profits they have actually generated and that this does not overlap with profits from previous time periods / avoiding paying performance fees for the same performance twice.

Let's look at an example of a graph showing the progress of a DARWIN's quote. For simplicity, let's imagine that the investor has remained invested for 3 quarters*.

In the graph, we can see how the HWM is calculated as the months go by.

In the third month, the HWM1 is calculated for the profit generated in this quarter. In this case, $10,000 of profit would have been made (and, consequently, $1,500 of performance fees would be paid).

In the following quarter, no new HWM would be generated, since €7,000 would have been lost in this quarter and the start-up profit would have been reduced to €3,000. However, at the end of the third quarter, HWM1 is exceeded again by €1,000, so a new high water mark is established: HWM2. Performance fees would thus be paid for the difference between HWM2 (€11,000) and HWM1 (€10,000), i.e. €1,000 in additional profit and €150 in performance fees.

In what situations can a reset occur in DarwinIA allocations?

1. A reset occurs in one of the following situations:

• Scenario 1: All DarwinIA allocations expire, closing with losses. These losses are fully covered, resetting the P&L to 0% for the next allocation.
• Scenario 2: While having losses greater than 5% in active allocations, you receive a new allocation, or an allocation is closed while another remains active. In this case, the accumulated loss is capped at -5%, and you must recover this loss to generate performance fees.

2. How does the reset mechanism work with real numbers?

Scenario 1:

• A trader has three consecutive allocations with an initial capital of €30,000 each.
• During these allocations, the trader incurs a cumulative loss of -€3,000.
• When all allocations expire, the total losses (-€3,000) are covered, and the P&L is reset to 0% for the next allocation.
• This allows any profits in new allocations to generate performance fees from the beginning.

Scenario 2:

• A trader has a DarwinIA allocation of €30,000 .
• During the first month, the trader incurs a loss of -10% (€3,000 ).
• In month 2, the trader receives a new allocation, triggering a reset to -5% (-€1,500).
• The trader earns €5,000 in profits from this point, recovering the accumulated loss and gaining an additional €3,500. Performance fees are calculated based on these €3,500 (instead of €2,000 if the reset had not occurred).

3. What is the purpose of the reset?
The reset mechanism aims to facilitate the collection of performance fees. Without the reset, traders would need to recover the entirety of their losses before earning new performance fees.

4. How does the reset impact performance fees?

• In Scenario 1, the trader starts the next allocation without losses, allowing performance fees to apply to any new profits from the start.
• In Scenario 2, performance fees apply only after recovering the -5% loss. For example, if the trader recovers to a P&L of +10%, performance fees are calculated on the profits above the recovery threshold (from -5% to +10% in this case).

The time period (a quarter)
At Darwinex Zero performance fees are charged per DARWIN on a quarterly basis, i.e. every three months. The quarter starts when the first allocation has been received in the DARWIN. Successive allocations have no effect on the starting date of the quarter, as this is set uniquely based on the first allocation date.

Where can I see this?

All the information available relating to current Capital under Management, P&L and HWM can be found at Payments->Allocations: