Capital Call
AdvancedA capital call is a request by a private fund manager to its investors to transfer part of the money they have committed to the fund, usually to make a new investment or pay fees.
Investors in private equity, venture capital, infrastructure and similar funds commit a total amount when the fund is formed, but they do not pay it all at once. Instead, the manager calls capital in stages as it finds investments, over a period that often lasts several years.
For example, an investor commits 10,000,000 to a fund. When the fund agrees to buy a company, the manager issues a capital call for 25% of commitments, and the investor must transfer 2,500,000 within a short notice period, often around ten business days.
This structure means investors' money is not sitting idle in the fund, which improves reported returns. But investors must keep enough cash available to meet calls when they arrive.
Failing to meet a capital call can have severe consequences under the fund's agreement, such as losing part of the investor's existing stake. Many funds now use short-term borrowing, called subscription lines, to delay capital calls, which can make reported returns appear higher.
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