The topic of performance-based fees is one of the many governance issues that arise in the management of investment assets, the investment process, and the investment enterprise. Performance-based fees are not inherently better or worse than asset-based fees—for sponsor or manager. Performance fees can be a fair and useful tool to align the interests of a manager with those of the clients, a way for clients to cut their overall fee burden, or a way for an investment manager to expropriate large chunks of client wealth. This column explores the subtleties of this fascinating element of the investment business.