General Partner Takes 100% of Equity Losses Up To Annual Limit of 5% of AUM High Water Mark
The First Loss Provision is calculated annually, meaning that in the above example, the Class B General Partner would absorb 100% of any cumulative losses up to $575,000 during the 12-month fiscal year. If the cumulative annual losses were to surpass $575,000, any remaining losses would be absorbed by the Class A Limited Partners. Additionally, the High Water Mark will apply retroactively to the beginning of the fiscal year.
In the above example, if there were a $600,000 loss in January, the General Partner would absorb $500,000 in January, and the Limited Partners would absorb $100,000. Then, in February, because the High Water Mark increased by $5,000, the General Partner would refund $5,000 to the Limited Partners. Then in March, the General Partner would refund another $10,000 to the Limited Partners, and so on and so forth until May, at which point the annual High Water Mark reaches its peak, and the the General Partner will have returned $75,000 to the Limited Partners, leaving the General Partner with a cumulative loss of $575,000 for the year, and leaving the Limited Partners with a cumulative loss of $25,000 for the year. This example assumes that the only loss for the year was the $600,000 loss in January, followed by no additional losses in the remaining months of the fiscal year.