Drawdown

In investment analysis, a drawdown represents a period of pronounced, steep losses for an asset, vehicle, or program. Typically measured as a percentage, it looks at the difference between the start of the losing period and its end.

The steepest drawdown in an investment program (like a hedge fund), is frequently referred to as the “max drawdown.” As past performance is not necessarily indicative of future returns, a max drawdown of one amount in previous years does not mean an investor will never suffer any more pronounced losses. But this number is often considered as part of an investor’s due diligence and portfolio risk management.