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Let Ri be the monthly returns (R1 for Jan, R2 for Feb, etc) Let Ci the the cumulative returns (C0= 0, C1=R1, C2=R1+R2, etc) Let AWCi be the above water cumulative return, defined as AWCi=MAX[0,Ci] In any month, the manager "receives" 0.2*[AWCi-AWC{i-1}] ; I say receives in quotes because this number can be negative. Then the investor receives the rest of ...

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