Subscription lines: what LPs should know about fund credit

A subscription line is a revolving credit facility that a private fund draws to pay for investments before calling capital from its investors, secured on the investors' unfunded commitments rather than on the fund's assets. For a limited partner it changes three things: when capital calls arrive, how the fund's reported internal rate of return is calculated, and what the fund costs. The facility is standard across private equity and most other closed-end strategies, and the LP's task is to understand its terms rather than to oppose it.

How a subscription line works

The lender advances cash against the right to call capital from investors, usually with a borrowing base that weights each investor's commitment by its credit quality. The fund uses the line to close deals quickly and to bunch several small calls into one. The line is repaid when the fund issues a capital call, and the cost is interest and fees charged to the fund.

The scale is large. Haynes Boone's 2026 Fund Finance Annual Report found that more than half of respondents estimated the global fund finance market at $1.25tn to $1.75tn, that 82% said subscription facilities made up more than two-thirds of it, and that 94% of participants had closed subscription financings in 2025.

What ILPA recommended

The Institutional Limited Partners Association published Subscription Lines of Credit and Alignment of Interests in June 2017. Its recommendations remain the reference point for LP side letters and LPA negotiations.

On limits, ILPA suggested a maximum share of uncalled capital, giving 15% to 25% as an example, and a maximum of 180 days outstanding for any draw, with facility exposure counted alongside other fund borrowing limits. On the preferred return, it recommended that the hurdle date align to when the facility is drawn rather than to the later capital call, so that the GP does not earn carry on a return produced by delaying the LP's cash outlay.

On disclosure, ILPA asked for quarterly reporting of the balance and the percentage of uncalled capital it represents, the number of days each draw has been outstanding, whether proceeds were used solely to bridge capital calls or for other purposes such as accelerated distributions, net IRR with and without the facility, the terms of the line including upfront and drawn and undrawn fees, and the total cost to the fund.

In 2024 ILPA issued separate guidance on NAV-based facilities, which borrow against the fund's portfolio rather than its commitments. It recommended that GPs seek LPAC consent before putting one in place unless the LPA expressly permits it, that consent be sought in any case where the proceeds fund distributions, and that LPs receive the rationale, use of proceeds, size, structure, controls and key economic terms. The two documents together describe the disclosure standard an LP can reasonably ask for across all fund-level borrowing.

The effect on IRR and multiple

Delaying the LP's cash outflow shortens the measured holding period, which raises IRR, while the interest cost lowers the multiple. ILPA's notional example makes the trade visible.

ILPA also cited a Cobalt analysis of 498 funds which found that delaying the first cash flow by up to a year raised IRR provided the fund's TVPI was above 1.0x, and lowered it where TVPI was below 1.0x. The median uplift was 206 basis points by year three, falling to 35 to 45 basis points by the end of fund life. The effect is largest early, when successor funds are being marketed.

For a family office this matters in two places. First, in manager selection, a fund's early IRR is not comparable across GPs with different facility usage unless the unlevered figure is disclosed. Second, in benchmarking the office's own returns, a programme of funds that all use lines will show a flattering IRR and a slightly lower multiple than the cash flows would otherwise produce.

What to ask a GP

The questions follow from the guidance. What is the facility size as a percentage of commitments, and what are the limits in the LPA? What is the maximum days outstanding, and has it been breached? Is the line used only to bridge calls, or also to fund distributions or to delay calls past a reporting date? From what date is the preferred return calculated? What is the all-in cost to the fund, and what was net IRR with and without the facility in the last reporting period? Are there side letters that restrict facility use, and do they apply to all investors?

There is a practical point for liquidity planning as well. A fund that uses its line heavily will issue fewer and larger capital calls, often with less notice relative to the deal date, and the first call may arrive many months after the fund has begun investing. An office forecasting capital calls should ask each GP how the line is used and adjust the expected call profile accordingly. The office should also recognise the difference between a subscription line and a NAV loan at the fund level, since the second borrows against assets the LP already owns and carries different risks.

Subscription lines are a settled feature of the asset class. The LP's leverage lies in the LPA terms and the reporting it insists on, which ILPA's two documents set out.