Subscription lines, explained
How they work, what they do to reported returns, and what LPs expect you to disclose.
What is a subscription line of credit?
A subscription line is a revolving credit facility to a fund, secured by LPs' unfunded commitments, that lets the GP fund investments quickly and call capital from LPs later and less often.
Effect on returns
Delaying capital calls shortens the period LPs' money is at work, which raises IRR without changing multiples. ILPA recommends reporting performance with and without the facility.
Costs and controls
Interest is a fund expense, so long-dated borrowing has a cost. Track draws, repayments, borrowing base and covenants, and set a policy for how long draws stay outstanding.
Disclosure
LPs increasingly ask for facility size, usage, days outstanding and cost each quarter.
Questions
Is a subscription line the same as a NAV facility?
No — NAV facilities are secured by the portfolio, used later in a fund's life.
Related reading
Subscription line of credit · NAV facility · Treasury and cash management for funds
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