One quarter's capital call on an illustrative buyout fund, sized from the uses of cash and allocated investor by investor.
A capital call is sized from the uses of cash over the call period, less the cash the fund already holds, and then allocated component by component: the investment and fund costs pro rata to commitments, the management fee on each investor's own fee terms. On an illustrative $400m fund closing a $36.0m deal, the call is $49.55m, or 12.39 per cent of commitments, after repaying $12.0m of subscription line and netting $2.6m of cash at bank. The anchor investor on a lower fee pays 12.29 per cent of its commitment; everyone else pays 12.41.
Worked in full in The Private Equity Fund Controller Playbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A buyout fund with $400m of commitments from five limited partners is three years into its investment period and has called $232.0m, 58.0 per cent. It is about to close a new platform deal, and the controller is preparing the call notice that goes out ten business days before closing. The previous deal was bridged on the subscription line, which the LPA requires to be repaid within the year. Investor C is an anchor with a 1.25 per cent fee; the others pay 1.75 per cent on commitments. All figures are illustrative, in $m.
| Item | Amount |
|---|---|
| Equity cheque at closing | 36.0 |
| Transaction costs borne by the fund | 0.9 |
| Fund expenses due in the quarter (audit, administrator, legal) | 0.45 |
| Subscription line principal to repay | 12.0 |
| Subscription line interest | 0.15 |
| Minimum cash balance the fund keeps | 1.0 |
| Less: cash at bank before the call | (2.6) |
| Non-fee amount to call | 47.90 |
| Management fee for the quarter, by investor terms | 1.65 |
| Total call | 49.55 |
The call covers what the fund must pay before the next call, not just the deal. List every outflow due in the period with its date, add the cash floor the fund has agreed with its administrator or bank, and deduct the cash already sitting in the account. Cash at bank is the line most often forgotten: calling it again leaves money idle and depresses the fund's IRR from the day it is received.
Non-fee call = deal + costs + expenses + sub line principal and interest + cash floor − cash at bank
= 36.0 + 0.9 + 0.45 + 12.0 + 0.15 + 1.0 − 2.6 = $47.90m
Excel: =SUM(B2:B7)-B8
The management fee is not a fund-level number divided by commitments. Each investor's fee follows its own rate, and here the anchor's 1.25 per cent makes the quarter's fee $1.65m rather than the $1.75m a flat 1.75 per cent on $400m would give.
Quarterly fee for each LP = commitment × fee rate / 4
LP C: 80.0 × 1.25% / 4 = 0.250; LP A: 120.0 × 1.75% / 4 = 0.525
Excel, per row: =B2*C2/4
The non-fee amount is allocated on each investor's share of commitments, 11.975 per cent of commitment for everyone, and the investor's own fee is added on top.
| LP | Commitment | Non-fee share | Fee | Total call | % of commitment |
|---|---|---|---|---|---|
| A | 120.0 | 14.370 | 0.525 | 14.895 | 12.41% |
| B | 100.0 | 11.975 | 0.438 | 12.412 | 12.41% |
| C (anchor) | 80.0 | 9.580 | 0.250 | 9.830 | 12.29% |
| D | 60.0 | 7.185 | 0.263 | 7.447 | 12.41% |
| E | 40.0 | 4.790 | 0.175 | 4.965 | 12.41% |
| Total | 400.0 | 47.90 | 1.65 | 49.55 | 12.39% |
Before the notice goes out, test the call against what each investor still owes. Unfunded commitment is $168.0m; this call uses 29.5 per cent of it and leaves $118.45m. If recallable distributions have been made, add them back to unfunded first, and if the fee is drawn outside commitments under the LPA, keep it off the unfunded test. The rule the checks should enforce is simple: no investor is ever called above its remaining commitment, subject to the LPA exceptions set out in can a fund call more than the commitment you signed. The free workbook for this case runs that check, together with the tie of the investor register to the call total, on every allocation.
Rounding: notices go out in whole currency units. Round each line, then post the residual of a unit or two to one investor, documented, so that the notices add up exactly to the amount the fund books.
The call moves dollar for dollar with the cheque and inversely with cash at bank. The fee, expenses and sub line repayment are fixed in the quarter.
| Equity cheque | No cash at bank | Cash 2.6 | Cash 8.0 |
|---|---|---|---|
| 24.0 | 40.15 (10.04%) | 37.55 (9.39%) | 32.15 (8.04%) |
| 36.0 | 52.15 (13.04%) | 49.55 (12.39%) | 44.15 (11.04%) |
| 48.0 | 64.15 (16.04%) | 61.55 (15.39%) | 56.15 (14.04%) |
The other lever is the subscription line. Leave the $12.0m drawn for another quarter and the call falls to $37.40m, 9.35 per cent of commitments. That is a financing decision with an interest cost and an effect on the reported IRR, and it belongs to the CFO, not to the person drafting the notice.
The common mistake is to size the call correctly and then allocate the whole amount pro rata to commitments. On $49.55m that charges the anchor investor $9.910m instead of $9.830m: $80k too much, because its fee discount has been spread across everyone. Investors A, B, D and E are undercharged by $30k, $25k, $15k and $10k. The total is right, so the fund's bank balance never shows the error; the capital accounts do, and the anchor's operations team will find it when it recomputes its own fee. The second mistake is calling the gross uses, $51.25m with a full-rate fee and no credit for cash or allowance for the floor, which over-calls and leaves idle cash on the balance sheet.
For the case where one investor stands aside from the deal, the investment line moves to a different base, as worked in how a capital call is allocated when an investor is excused.
Usually, yes. Most private equity funds draw the quarterly management fee from investors through capital calls, and it counts against unfunded commitment unless the LPA says otherwise. Compute it per investor on its own rate: here a 1.25 per cent anchor and four investors at 1.75 per cent give a quarterly fee of $1.65m, not the $1.75m a flat rate on $400m of commitments would suggest.
The LPA sets it, and ten business days is a common term. The notice has to state the amount, the purpose split between investment, fees and expenses, and the due date. Size it close to the funding date: on this illustrative fund a $36.0m deal calls $49.55m, but if cash at bank were $8.0m rather than $2.6m the same deal would call $44.15m.
No, outside specific LPA provisions such as recallable distributions added back or defaulting investor make-up calls capped by the agreement. Test every notice against unfunded commitment: here $168.0m is unfunded before the call, the call uses 29.5 per cent of it and leaves $118.45m.
This article is one calculation from The Private Equity Fund Controller Playbook. 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.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: private equity and private markets → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.