Its most recent financial statements show it received $20.3 million in performance fees in the 2015 year, up from $18.9 million in 2014. It earned $24.3 million in capped management fees.

High water marks are used to stop fund managers earning performance fees when they are only recovering past losses.

The new fee structure, revealed in its latest prospectus, gives Milford a higher bar to clear.

Absolute return funds will reset their high water marks after every six months of positive performance, regardless of their position relative to the benchmark.

If a $100 million fund aimed for 20% but achieved 10%, the new high water mark would be $110 million and the fund would have to achieve that before receiving any performance fee.

It would then receive 15% of the returns above the point, and investors would get 85%.

Relative funds have to carry forward their losses and recover from those before they earn a fee.

Milford managing director Anthony Quirk said the performance fees were set in 2007. “Back then there was very little to compare to in the New Zealand market on performance fees.”

He said it was time to update the model but it was important for clients to judge performance fees as part of the wider fee structure.

Milford promotes its low, capped management fees, which cover all fixed charges. The income fund has a 0.65% management fee, compared to competitors charging over 1%, Quirk said. Its active growth fund charges 1.05% in management, compared to 1.5% from competitors.

“Others have those fees and trustee and custodian fees,” he said. “We paid $5 million to those suppliers in the year ending March 2015.”

He said performance fees encouraged the firm to do well. “We don’t like the idea of clipping the ticket with a high fee no matter how we perform. [With performance fees] we share in some of the upside if we produce upside, it’s an alignment with investors that has struck a chord with clients and is a reason for our growth. People like the low capped fee and the fact we have to perform.”