It's hard to say, from just TFA. As I read it, their goal is for everyone to at least get back their principal. But the only way to manage that is to claw back withdrawals.
Put another way, they've constructed a but-for world where everyone just invested, but took no returns. Then they distribute everything that's available in proportion to those investments. So as a result, everyone simply lost the same percentage of their investment.
Isn't that fair?
What's confusing, I think, is the idea that they're somehow punishing people who withdrew profits. Because maybe they should have known that they were too good to be true. But I don't think that's relevant. They're just unwinding the thing.
I don't think that is fair exactly as described. Someone who invested $1MM in 1988 should get back more than someone who invested $1MM in 1999, IMO, because their alternative investment would have grown substantially in the interim. IOW, on a then-present-value basis, the 1988 investor invested more.
If there were actual earnings to distribute, adjustments such as you describe would certainly be appropriate. However, it seems likely that, in the aggregate, all investors (as a group) lost. So maybe getting back X% of principal is the only workable approach. And I don't know specifics. Perhaps they are doing it all on a present-value basis, adjusted for inflation, but-for returns, etc.
It doesn’t work like that. If their alternate investment had gone bankrupt, they would have lost everything instead. Nobody has a right to a risk-free rate of return, if they are chasing higher-risk return rates.
Giving everyone back their capital is about as even-handed as you’re going to get.
Put another way, they've constructed a but-for world where everyone just invested, but took no returns. Then they distribute everything that's available in proportion to those investments. So as a result, everyone simply lost the same percentage of their investment.
Isn't that fair?
What's confusing, I think, is the idea that they're somehow punishing people who withdrew profits. Because maybe they should have known that they were too good to be true. But I don't think that's relevant. They're just unwinding the thing.