Capital Call

A formal request from a fund manager for investors to contribute a portion of their committed capital, typically issued when investments are made.

A capital call (or "drawdown") is a formal notice from a General Partner to Limited Partners requesting transfer of committed capital to fund investments or expenses.

How Capital Calls Work

1. LP commits $500,000 to fund
2. Fund identifies investment opportunity
3. GP issues capital call for $100,000 (20% of commitment)
4. LP has 10-15 days to wire funds
5. Funds used for investment + fees

Capital Call Mechanics

Notice Period: Typically 10-15 business days

Call Amount: Usually 10-30% of commitment per call

Frequency: As needed for investments (varies widely)

Failure to Fund: Serious consequences (see below)

Consequences of Missing a Capital Call

  • Penalty interest: 10-15% on late payments
  • Forfeiture: Loss of some/all committed capital
  • Dilution: Reduced ownership percentage
  • Forced sale: Must sell interest at discount
  • Legal action: GP can sue for breach

Capital Call Planning for LPs

Investors should:

  • Maintain liquidity for calls
  • Track unfunded commitments
  • Budget for call timing uncertainty
  • Consider a credit line for bridge financing

Related Terms

committed capitaldeployed capitalgp lp

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