![]() Limited partners contribute to the funds pro rata, meaning that their contribution during the capital calls are proportional to the total capital committed to the fund. Similarly, the drawdown duration is the length of any peak to peak period, or the time between new equity highs, whereas the max drawdown duration is the worst (the maximum/longest) amount of time. Investment firms, such as hedge funds and mutual funds, monitor the maximum drawdown of their portfolio as a method of quantifying downside risk and having a historical precedence to reference. Maximum Drawdown (MDD) is an indicator of downside risk. Conceptually, the maximum drawdown identifies the peak value and trough value of a portfolio or single investment, i.e. The amount of paid in capital that has been invested is referred to as “invested capital”. Maximum Drawdown (MDD): A maximum drawdown (MDD) is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Hedge fund strategies can carry a huge investment risk, and chasing the bull market or following a herd mentality can get you financially trampled. The cumulative amount of capital that has been drawn down is called “paid in capital”. A hedge fund is an investment partnership between the fund manager (called the general partner) and investors in the hedge fund (called limited partners). ![]() It is the act of transferring the promised funds to the investment target. A drawdown (aka capital call) is the legal right of a private equity firm to demand a portion of the committed capital from the limited partners to pay for a newly identified investment or expense. The full capital commitment is rarely invested immediately and is drawn down over time as more investment opportunities are identified. This is money that investors have promised to contribute to the fund in order to purchase an asset or fund any expense. In private equity, money that is committed by limited partners to a private equity fund is referred to as committed capital.
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