Subscription Credit Line
Private Equity glossary · Private Equity Fundamentals
Definition
A short-term revolving facility (also called a capital call line or fund-level revolver) collateralized by LPs' uncalled commitments, used by the GP to fund investments and expenses before issuing capital calls — typically repaid quarterly or at milestones. By deferring the start of the LP IRR clock by 6-12 months, sub-line usage can boost reported net IRR by 100-200 bps, all else equal — this is the principal IRR-manipulation vector flagged by ILPA, which has called for clearer disclosure of sub-line usage and tenor.
Subscription Credit Line in plain English
Imagine a group of friends promises to chip in money whenever you find something worth buying, but actually collecting from everyone takes weeks. A subscription credit line is a bank loan a fund uses to pay for a deal right now, using those unpaid investor promises as collateral, then the fund collects the real money later and repays the loan. Here's the sneaky part: a fund's headline return (IRR) measures how fast the investors' cash grew, and the clock only starts when their cash actually goes in. By borrowing first and calling investor cash 6-12 months later, the money looks like it grew faster than it really did, inflating the reported return by roughly 1-2 percentage points (100-200 'bps', where 1 bp = 0.01%). Watchdogs like ILPA dislike this because it flatters the scoreboard, so they push funds to disclose how much and how long they lean on these loans.
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