Subscription Credit Line

When a private equity or private credit fund signs a deal, it needs cash immediately. But formally calling capital from dozens of investors takes time. To bridge that gap, funds routinely draw on a subscription credit line (also called a capital call facility), a loan from a bank secured against the legal commitments investors have already made. The fund later calls capital from investors to repay the line.

The practical effect is that investors see fewer, larger capital calls rather than many small ones, which simplifies cash management. However, subscription lines have a less visible consequence: they flatter the fund's reported internal rate of return, or IRR. Because IRR measures time-weighted returns from the date cash actually leaves the investor's account, delaying calls mathematically compresses the apparent investment period and improves the stated IRR; even if underlying asset performance is unchanged.

For families evaluating manager performance across private markets, this is a meaningful analytical wrinkle. Two funds with identical asset-level results can report different IRRs purely because of subscription line usage. Asking a manager how extensively they use subscription lines, and requesting IRR figures calculated both with and without line usage, is a reasonable question. A hypothetical family comparing two venture funds should ensure they are comparing metrics on a consistent basis before drawing conclusions.