Every call has a fixed cost and every early dollar has a carrying cost. The cheapest frequency depends on when the fee falls due, and on whose cost you count.
Call as often as the cost of one more call is lower than the cash drag it removes: annual cost = number of calls × cost per call + opportunity cost × average idle cash. On an illustrative $300m fund paying a 1.75 per cent fee quarterly in advance and $850,000 of expenses, quarterly calls cost $37,833 a year, against $50,833 semi-annually and $105,000 monthly. Once the investors' own processing cost is counted, semi-annual calls become the cheaper choice for the fund's investors as a whole.
Worked in full in The Private Markets COO by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Fee and expense calls are routine, which is why their frequency is rarely questioned. Each call has a fixed cost: the administrator's notice, the reconciliation of every receipt, and the work at each investor. Each early dollar has a carrying cost: it sits in the fund's account at a deposit rate while the investor could have earned more elsewhere. The right frequency balances the two, and the answer depends on when the fee falls due.
| Input | Value |
|---|---|
| Commitments | $300m |
| Management fee on commitments, paid quarterly in advance | 1.75% ($5,250,000 a year) |
| Fund expenses, paid evenly through the year | $850,000 |
| Administrator charge per call notice | $3,500 |
| Internal time per call: 25 hours at $120 | $3,000 |
| Receipt reconciliation: 45 investors at $50 | $2,250 |
| Cost to the manager and fund per call | $8,750 |
| Processing cost at each investor per call | $400 |
| Deposit rate on fund cash | 3.5% |
| Investors' return on cash kept outside the fund | 7.5% |
The carrying cost of idle cash is the gap between the two rates, 7.5% − 3.5% = 4.0 per cent a year.
A call at the start of a period funds every payment due in that period. Each payment sits idle from the call date to its due date, so idle cash in dollar-years = sum of (payment × years waited).
Quarterly fee: $5,250,000 ÷ 4 = $1,312,500, due on the first day of each quarter.
Annual call: the fee for quarters 2, 3 and 4 waits 0.25, 0.5 and 0.75 years: $1,312,500 × 1.5 = $1,968,750. Monthly expenses add $389,583. Total idle cash: $2,358,333.
Semi-annual call: one quarter's fee waits a quarter in each half: $656,250, plus $177,083 of expenses = $833,333.
Quarterly call, timed with the fee: the fee waits zero days. Only expenses wait: $70,833.
Monthly call: nothing waits.
| Calls a year | Average idle cash | Cash drag at 4.0% | Call cost at $8,750 | Total | bp of commitments |
|---|---|---|---|---|---|
| 1 (annual) | $2,358,333 | $94,333 | $8,750 | $103,083 | 3.4 |
| 2 (semi-annual) | $833,333 | $33,333 | $17,500 | $50,833 | 1.7 |
| 4 (quarterly) | $70,833 | $2,833 | $35,000 | $37,833 | 1.3 |
| 12 (monthly) | $0 | $0 | $105,000 | $105,000 | 3.5 |
From the manager's side, quarterly is cheapest, and it is cheapest because it matches the fee date. Moving to monthly calls removes $2,833 of drag and adds $70,000 of call cost: $67,167 a year more, $671,667 over a ten-year fund life. Moving to annual calls costs $65,250 a year more, because the drag on idle cash outweighs the three calls saved.
In Excel, with outflows by month in B2:B13, their due month in A2:A13 and the call month in C2:C13: =SUMPRODUCT(B2:B13,(A2:A13-C2:C13)/12)*4%+Calls*8750.
Every call also costs each investor something: a treasury instruction, an approval, a booking. At $400 for each of 45 investors, that is $18,000 a call, taking the all-in cost to $26,750.
| Calls a year | Call cost at $26,750 | Total including investors |
|---|---|---|
| 1 | $26,750 | $121,083 |
| 2 | $53,500 | $86,833 |
| 4 | $107,000 | $109,833 |
| 12 | $321,000 | $321,000 |
With the investors' cost counted, semi-annual calls save $23,000 a year over quarterly. On the fund's own costs quarterly calls are $13,000 cheaper, but the two extra calls add $36,000 of processing at the investors. A COO setting the policy should know which of the two totals the operating calendar is optimising.
| Commitments | Annual fee | Best, manager cost only | Annual cost | Best, with investors' cost | Annual cost |
|---|---|---|---|---|---|
| $100m | $1,750,000 | 2 calls | $33,333 | 1 call | $68,583 |
| $300m | $5,250,000 | 4 calls | $37,833 | 2 calls | $86,833 |
| $1,000m | $17,500,000 | 4 calls | $37,833 | 4 calls | $109,833 |
The larger the fee, the more expensive it is to call it early, so large funds converge on quarterly calls whoever's cost is counted. Small funds should call less often than habit suggests. Monthly calls are never the cheapest option in this range.
The textbook cash-management answer, the square-root rule n = √(annual outflow × carrying rate ÷ (2 × cost per call)), assumes outflows arrive evenly. Applied to the $6,100,000 total it gives 3.7 calls a year and looks like a confirmation of quarterly calls. It is right for the wrong reason. The fee is not spread evenly; it is lumped on four dates, and that is what makes quarterly calls efficient. Applied to the expenses alone, the same rule gives 1.4 calls. The test that matters is whether the call dates line up with the large payments. A quarterly call issued a month before the fee date carries the whole fee idle for a month and loses most of its advantage.
Policy point: fix call dates against the fee dates in the operating calendar, and fund small or irregular expenses from the subscription line or from cash on hand between calls rather than adding calls.
The cost of a call frequency is call cost plus 4.0 per cent on the cash it leaves idle. On a $300m fund that makes quarterly calls aligned with the fee the cheapest for the manager at $37,833 a year, and semi-annual calls the cheapest once investors' processing is counted. How a single call is sized and allocated is shown in how to calculate the size of a capital call. The book's own capital call, with its notice period counted against the funding date on the holiday calendar, is reproduced in the free workbooks for this book.
Because the drag they remove is small and the call cost is fixed. In the illustrative $300m fund, quarterly calls timed with the fee leave only $70,833 of average idle cash, a $2,833 drag. Monthly calls remove it but add eight more calls at $8,750 each, costing $67,167 a year more than quarterly.
If the policy is meant to serve the fund's investors, yes. At $400 per investor per call for 45 investors, each call costs $26,750 in all, and semi-annual calls become cheapest at $86,833 a year, $23,000 less than quarterly. Counting only the manager's $8,750 per call points to quarterly instead.
Only when outflows are spread evenly. Applied to the illustrative fund's $6,100,000 of annual fees and expenses it suggests 3.7 calls a year, but the fee is paid on four fixed dates, so the real driver is alignment with those dates. Applied to the $850,000 of expenses alone, the rule gives 1.4 calls a year.
This article is one calculation from The Private Markets COO. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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