medium · Private Credit & Debt fund-structures-returns-economics
A fund uses a 'Subscription Line' of credit to finance its investments.
How does this typically impact the fund's reported IRR to its Limited Partners?
- It has no impact because IRR is only calculated on the gross value of the portfolio companies.
- It reduces the J-curve depth but also reduces the ultimate MOIC of the fund.
- It decreases the IRR because the interest expense on the credit line is a drag on net returns.
- It tends to inflate the IRR by delaying capital calls and shortening the measured investment period.
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