·The Dash
First-loss capital: how a manager shares risk with the investor
What a first-loss tranche is, why it matters more than nice words about 'safety', and how it works inside a fund's capital stack.
When a fund says it “protects your capital”, ask one thing: did the manager put their own money next to yours? If they did — and it’s lost first — that’s first-loss capital.
What a capital stack is
Capital in a fund is arranged in layers (a stack), each with its own place in line for losses and for repayment:
- Senior tranche (super-senior). Sits at the top. Repaid first, absorbs losses last.
- First-loss tranche. Sits at the bottom. Absorbs losses first, repaid last.
The logic is simple: if the portfolio takes losses, they eat the bottom layer before they ever reach the top one.
Why it matters to the investor
At Dash, investors sit in the senior tranche and Dash’s own capital sits in the first-loss tranche. That means:
- Portfolio losses are absorbed first by the manager’s own capital.
- Losses only reach investor capital after the first-loss layer is exhausted.
- The manager has skin in the game — they lose first, so they’re incentivised to underwrite deals strictly.
This is stronger than any claim of “safety”: the manager’s and the investor’s interests are aligned with money, not promises.
What first-loss does NOT do
It’s important to be honest: a first-loss tranche is a buffer, not a guarantee.
- It absorbs losses up to a point. In very large, systemic losses the senior tranche can be hit too.
- It does not remove illiquidity and does not guarantee returns.
- Executing collateral on defaulted loans does not guarantee full restoration of the position.
How it looks in numbers
In the fund’s target structure, investors hold the larger part of the stack (senior tranche), and Dash’s own capital sits at the bottom (first-loss). Exact proportions are fixed in the LPA and are illustrative — they may change as the portfolio scales.
Capital-stack proportions are illustrative. Returns are targets and not guaranteed. Investments are illiquid and carry the risk of capital loss. This material is informational and is not an offer or investment advice.