hard · Private Equity value-creation

If a sponsor uses a 'Subscription Credit Line' to fund initial capital calls and delays calling capital from LPs for 12 months, how does this practice typically affect the fund's reported performance metrics?

1. It artificially inflates the IRR by shortening the time between the capital call and the distribution, while having no impact on the MOIC.
2. It decreases the IRR because of the ongoing interest expense the fund incurs from drawing on the subscription credit line facility during the delay.
3. It simplifies the J-curve effect by ensuring the fund reports positive net returns beginning immediately in Year 1 of operations.
4. It increases the reported MOIC by lowering the total lifetime management fees the fund pays out to the GP over its entire fund life.

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