Performance Fee (PF) or Incentive Fee equals the Performance Fee rate multiplied by the difference between the Gross Asset Value (GAV) and the High-Water-Mark (HWM). 

HWM (as explained here) is a specified Net Asset Value (NAV) level that a fund must exceed before Performance Fees are paid to the hedge fund manager. Once the first incentive fee has been paid, the highest month-end NAV establishes a HWM.

When the PF "crystallises" at the end of the Performance Period, it means it is payable to the investment manager and is no longer just an estimate or a number that accrues. At the end of a Performance Period, if a PF crystallises, the NAV at that point becomes the new HWM.

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