Subscription Line (Capital Call Facility)
A subscription line is a credit facility a fund uses to finance investments before calling capital from LPs.
Allocator relevance: Changes cash-flow timing and can inflate IRR—also introduces leverage and transparency considerations.
Expanded Definition
Subscription lines allow funds to close deals quickly and smooth capital calls, but they delay when LP capital is actually deployed. This can increase reported IRR by shortening the time between capital call and distribution, without changing true multiple outcomes. Subscription lines also introduce borrowing costs and leverage risk, though typically secured by LP commitments.
Allocators evaluate line usage because it affects liquidity planning, performance interpretation, and true exposure.
How It Works in Practice
The fund borrows to fund investments, then later calls capital to repay the line. Policies define maximum usage, duration, and disclosure. Some LPs negotiate limits via side letters.
Decision Authority and Governance
Governance requires transparent reporting: line balances, duration, costs, and impact on performance metrics. LPAC may oversee usage policy where it affects fairness or risk.
Common Misconceptions
- Subscription lines are harmless and purely administrative.
- They only matter for large funds.
- IRR improvements from lines equal better performance.
Key Takeaways
- Lines shift timing and can distort IRR.
- They are a form of leverage with costs.
- Disclosure quality determines trust.