medium · Private Credit fund-structures-returns-economics
A fund uses a 'Subscription Line' of $150 million to fund investments while waiting for LP capital calls.
If the line costs SOFR + 200 bps and the fund earns 10% on its investments, how does this impact the reported IRR to LPs during the early investment period?
- It increases the reported IRR by delaying the 'start date' of the LPs' capital contributions.
- It has no impact on IRR as it is considered fund-level financing, not investment-level.
- It increases MOIC but decreases IRR.
- It decreases the reported IRR due to the additional interest expense paid on the credit line.
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