Cash Drag occurs when a fund raises money but takes too long to invest it. That cash sits in the bank earning very little, which drags down the overall IRR of the fund.
This is why the ‘Capital Call’ model is superior. By leaving the money in the investor’s pocket until the moment it’s needed, AIFs minimize cash drag. Efficient deployment of capital is a hallmark of a top-tier fund manager; they respect the time value of your money.
