Subscription Credit Facilities

A Subscription Credit Facility (subscription line) is a borrowing arrangement used by funds, secured by LP capital commitments, to finance investments and expenses before issuing capital calls. It can smooth operations and reduce the frequency of calls, but it also changes cashflow timing and can distort reported performance metrics.

From an allocator perspective, the question is not “do you use a line.” The question is how you use it: limits, duration, disclosure, and alignment.

How allocators define subscription line risk drivers

Allocators evaluate lines through:

• Usage policy: what the line can fund (investments, fees, expenses)
• Duration limits: how long borrowings can remain outstanding
• Size and caps: maximum borrowing vs commitments
• Cost allocation: interest and fees and who bears them
• Disclosure: reporting of NAV/IRR with and without line usage
• Liquidity impact: delayed capital calls vs true cash needs
• Governance: LPAC consent requirements or reporting obligations
• Down-cycle behavior: line reliance when liquidity is stressed

Allocator framing:
“Is the line an operational bridge—or a performance optics tool that shifts risk and transparency to LPs?”

Where subscription lines matter most

• funds that tout early IRR performance
• strategies with frequent deals and rapid deployment
• LPs with strict transparency standards
• down cycles when cashflows tighten and leverage optics matter

How line usage changes outcomes

Disciplined usage:

• smoother operations and fewer small capital calls
• clearer liquidity planning for LPs
• higher trust through transparent reporting

Undisciplined usage:

• inflated early IRR optics
• delayed recognition of true cashflows and liquidity needs
• increased governance concern and side letter restrictions
• reputational risk when disclosure is weak

How allocators evaluate discipline

Conviction increases when managers:

• disclose usage clearly and report metrics with/without the line
• set hard caps and duration limits
• explain cost allocation transparently
• show governance oversight (LPAC reporting or consent where relevant)

What slows allocator decision-making

• vague line policy and unclear caps
• poor disclosure of impact on IRR and cashflows
• line used to fund fees/expenses without transparency
• no explanation of down-cycle behavior and stress impact

Common misconceptions

• “Everyone uses lines so it doesn’t matter” → disclosure quality is the differentiator.
• “Lines improve returns” → they often shift timing and optics, not economics.
• “LPs don’t care” → sophisticated LPs care deeply about transparency and governance.

Key allocator questions during diligence

• What can the line fund and what are the caps?
• How long can borrowings remain outstanding?
• Who bears interest and fees and how is it allocated?
• Do you report IRR with and without line usage?
• What governance and reporting obligations exist around the line?