Subscription Lines (Capital Call Facilities)
Definition
A subscription line, also called a subscription credit facility, capital call facility or capital call line, is a revolving loan made to a private fund by a bank and secured by the fund's right to call capital from its investors: the uncalled commitments of the limited partners and the general partner's power to draw them. The fund borrows to pay for investments and expenses as they arise, then calls capital from investors later, in larger and less frequent batches, to repay the line. Facilities are sized at 15 to 30 percent of eligible commitments, priced at a spread of roughly 1.5 to 2.5 percentage points over SOFR plus a commitment fee, and most agreements require each draw to be repaid within 90 to 365 days. Nearly every buyout and private credit fund raised since 2015 has one. The facility smooths cash flows and administration for both sides, and because it delays the date investors' money goes in, it raises the fund's reported internal rate of return without changing the multiple.
Why it matters
The subscription line is the reason two funds with the same investments and the same profits can report IRRs several points apart, and the reason a fund's early IRR can be spectacular while its investors have barely put money in. For an allocator comparing managers, it makes IRR unusable without knowing each fund's line policy; for an individual investor reading a platform's performance table, it is the unstated assumption behind every IRR shown. It is also a real liability: the fund owes a bank money that only investors' capital calls can repay, and the calls arrive on the bank's schedule.
Common misconceptions
- •A subscription line is not leverage on the investments. The loan is repaid from investors' own capital, not from asset sales; it changes when money is contributed, not how much is at risk.
- •The IRR increase is not performance. Multiples (TVPI, DPI) are unaffected by the line; only the rate is, because the rate depends on dates.
- •The line is not permanent capital. Draws must be repaid within a stated period, commonly 90 to 365 days, by calling capital; a fund cannot run on the line indefinitely.
- •An unlevered IRR is not always disclosed. ILPA asks for it; many managers report only the line-assisted figure, and platform performance tables almost never show both.
Technical details
Worked example: the same deal, with and without the line
Without a line: the fund calls $100 million on January 1 of year one, invests it the same day, and sells the investment for $150 million on January 1 of year three. Investors' cash flows: minus $100 million at year 0, plus $150 million at year 2. Multiple 1.5x; IRR 22.5 percent.
With a line: the fund draws $100 million on the line on January 1, invests it, and calls $100 million from investors on July 1 to repay the line plus about $3.5 million of interest for six months. Investors' cash flows: minus $103.5 million at year 0.5, plus $150 million at year 2. Multiple 1.45x; IRR 28.0 percent.
The investors received $3.5 million less and are shown a return 5.5 points higher. Over a ten-year fund with many deals the effect is diluted but still positive, commonly 0.5 to 3 points on the fund-level IRR.
The preferred return: with an 8 percent hurdle measured from the call date, the fund clears the hurdle sooner and the manager's catch-up and carry begin sooner, which is what ILPA's 2020 guidance addresses.
How the facility is built
Security: a pledge of the fund's right to call capital, the general partner's power to enforce it, and the bank account into which calls are paid; the lender can issue capital calls itself on default.
Borrowing base: eligible commitments times an advance rate. Institutional investors with strong credit are included at 90 percent or more; high-net-worth and feeder-fund commitments at lower rates or excluded; the GP's commitment and defaulting investors excluded. A $1 billion fund might have $700 million of eligible commitments and a $175 million facility.
Concentration limits: no single investor above 15 to 25 percent of the borrowing base, so a fund with one dominant investor has a smaller line.
Clean-down and tenor: each draw repaid within 90 to 365 days; the facility itself runs one to three years and is renewed through the investment period; it terminates when uncalled commitments fall below a threshold.
Cost: SOFR plus 1.5 to 2.5 percent drawn, 0.2 to 0.4 percent undrawn, plus arrangement fees; charged to the fund as an expense.
What the line does to investors' cash flows
Fewer, larger calls: quarterly or semi-annual calls that repay the line and fund the next period, instead of a call per deal.
Later calls: the investors' money arrives 3 to 12 months after the fund's, which is the source of the IRR effect and of the interest cost.
Bunched calls in stress: if the lender reduces or terminates the facility, the fund must call the outstanding balance at once; in March 2020 several funds issued their largest calls of the cycle for this reason.
Default exposure: an investor who cannot meet a call that repays the line faces the partnership agreement's default remedies, and the lender has the standing to insist they are enforced.
Disclosure and the ILPA guidance
2017 ILPA guidance: lines limited to 180 days outstanding and 15 to 25 percent of commitments; quarterly disclosure of size, cost, drawn balance and days outstanding; IRR reported with and without the line.
2020 ILPA update: the preferred return should accrue from the date the line is drawn for an investment, not from the later capital call; managers should disclose the line's effect on carry timing.
SEC: the 2023 private fund adviser rules would have required quarterly statements showing performance with and without fund-level borrowing; the rules were vacated in 2024, so disclosure remains a matter of the LPA and the manager's practice.
What to ask for: the unlevered IRR, the average days outstanding, the facility's cost as a share of fund expenses, and whether the pref runs from draw or call.
Subscription lines against NAV facilities
Subscription line: secured by uncalled commitments; used in the investment period; repaid by capital calls; sized to investor credit quality.
NAV facility: secured by the fund's portfolio; used later in life when commitments are mostly called; repaid from realizations; sized to the value and diversification of the assets; used to fund follow-ons, bridge distributions or recapitalize; adds true leverage to the investments.
Hybrid facilities combine both bases and shift from one to the other as the fund matures.
Frequently asked questions
- What is a subscription line in private equity?
- A bank loan to the fund itself, not to its portfolio companies, secured by the investors' promise to fund their commitments when called. The manager draws on it to close deals quickly and pay fees, and repays it by calling capital from investors a few months later. It exists so the fund does not have to issue a capital call for every investment and so investors receive fewer, larger, more predictable calls.
- How does a subscription line increase IRR?
- By shortening the period the investors' money is in the fund. IRR is a rate on cash flows; if the fund invests $100 million on January 1 using the line and calls the $100 million from investors on July 1, the investors' clock starts six months later. The investment's profit is unchanged, so the multiple is unchanged, but the same profit over a shorter holding period is a higher annual rate. In a fund's early years the effect can add several percentage points to reported IRR; over a full fund life it typically adds 0.5 to 3 points, minus the interest cost.
- What is a capital call facility and is it the same thing?
- The same instrument under another name. Subscription line, subscription credit facility, capital call facility, capital call line and sub line all describe a loan secured by uncalled commitments. NAV facilities are different: they are secured by the fund's investments rather than its investors' commitments and are used later in a fund's life.
- How big is a subscription line and what does it cost?
- Typically 15 to 30 percent of the commitments the lender counts as eligible, which excludes the general partner's commitment, funds of funds and other investors the lender cannot underwrite. Pricing is a margin of about 1.5 to 2.5 percent over SOFR on drawn amounts, a commitment fee of 0.2 to 0.4 percent on undrawn amounts, and upfront fees. The cost is borne by the fund, so by investors, and reduces net returns slightly while the IRR effect increases them.
- What is the difference between a subscription line and a NAV loan?
- The collateral. A subscription line is secured by the investors' uncalled commitments and is used early in a fund's life, when most capital is still callable; it is repaid from the next capital call. A NAV loan, or NAV facility, is secured by the fund's investments themselves and is used later, once commitments are largely called, to fund follow-ons, distributions or fees against the value of the portfolio. The two sit at opposite ends of the fund's life and carry different risks: a subscription line fails if investors default on calls, a NAV loan fails if the portfolio's value falls below the lender's covenants. The NAV facility reference page covers the second structure.
- What does ILPA say about subscription lines?
- The Institutional Limited Partners Association's 2017 guidance asked managers to limit lines to 180 days outstanding and 15 to 25 percent of commitments, to report IRR both with and without the line, and to disclose the facility's size, cost and usage quarterly. Its 2020 update added that the preferred return should be calculated from the date the line was drawn, not the date capital was called, so that the manager's carry is not brought forward by the delay. Many, not all, funds have adopted these terms.
- What are the risks of subscription lines for investors?
- Capital calls become larger and less predictable, arriving when the line must be repaid rather than when deals close; the interest cost reduces returns; the preferred return hurdle can be reached sooner, accelerating carried interest; and in a stress event the lender can demand repayment, forcing a large call at a bad time. If an investor defaults on that call, the lender can pursue the fund's remedies against the investor. The reported IRR is also harder to compare across funds that use lines differently.
- Does an access fund investor see the subscription line?
- Usually not directly. The master fund's line delays the calls the feeder receives, and the feeder passes those calls on. Some platform feeders run their own facility to bridge individual investors' subscriptions, adding a second layer of interest cost. The IRR the platform quotes for the underlying fund is almost always the line-assisted figure; ask for the unlevered one.