In hedge funds, the high-water mark is a mechanism used to ensure that clients are not charged performance fees twice for the same performance. It represents the highest value of the fund investment (net of fees) at any performance fee calculation date. The high-water mark clause requires the fund manager to recover any declines in value from this peak before charging fees on new profits. This protects clients from paying fees on performance that has already been compensated.

• Option A (Discount): Incorrect because discounts on fees for larger investors or placement agents do not address the issue of double-charging for performance.
• Option B (Hurdle rate): Incorrect because the hurdle rate is a minimum return threshold that must be exceeded before performance fees are earned, but it does not prevent double-charging for the same performance.