Reading 31: Equity Portfolio Management－LOS u

Symmetry refers to when the manager receives both rewards for good performance and punishment for bad performance. A high water mark provision states that a manager must compensate for past underperformance before receiving a performance-based fee. This is the only compensation provision mentioned in the responses that punishes for bad performance so it is the only one that provides symmetry.

A performance-based fee may include a fee cap where a maximum is placed on the performance fee. The intent is to prevent managers from undertaking too much risk to earn higher fees.

Performance-based fees align the interests of the equity manager and the investor, especially if they are symmetric. A symmetric compensation plan has both rewards for good performance and punishment for bad performance. The other responses do not punish the manager for bad performance.