The overcall is the default clause that reaches the investors who paid, and its two limits bind at different points in the fund's life.
An overcall can only ask the non-defaulting limited partners for the defaulter's share pro rata, within two limits: the cap the LPA sets on any one overcall and each investor's remaining unfunded commitment. On an illustrative $60.0m call where a 25 per cent anchor defaults, the others would need to fund 38.5 per cent more than their own calls; a cap of 25 per cent of each investor's call covers $10.83m of the $16.67m gap and leaves $5.83m, 9.7 per cent of the deal, unfunded.
Worked in full in How to Read a Limited Partnership Agreement by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Default clauses are usually read from the defaulter's side: interest, forfeiture, forced sale. The overcall is the clause that reaches everyone else. It decides whether the fund can still close the deal the call was for, and how much more of that one deal each remaining investor ends up owning. It is worth computing before a default rather than during one, because the answer turns on two numbers that move over the life of the fund.
| Investor group | Commitment | Unfunded before the call | In this call? |
|---|---|---|---|
| Anchor (defaults) | 125.0 | 37.5 | Yes |
| Pension group | 200.0 | 60.0 | Yes |
| Insurers and family offices | 100.0 | 30.0 | Yes |
| Fund of funds | 25.0 | 7.5 | Yes |
| Excused from this deal | 50.0 | 15.0 | No |
| Total | 500.0 | 150.0 |
The fund calls $60.0m for one acquisition. Every investor has 30 per cent of its commitment unfunded. The illustrative overcall clause lets the general partner call the non-defaulting, non-excused partners for the shortfall in proportion to their own share of the call, provided no partner funds an overcall of more than 25 per cent of its own share of that call, and never more than its unfunded commitment. Real clauses vary: some cap by reference to commitment, some leave the overcall at the general partner's discretion, some have no overcall at all. Read the actual words before using any of these figures.
Excused partners do not participate, so the call is spread over $450.0m of participating commitments: call rate = 60.0 ÷ 450.0 = 13.33%.
Anchor 16.67, pension group 26.67, insurers and family offices 13.33, fund of funds 3.33.
The anchor's 16.67 is missing. The paying partners' own calls total 43.33, so an uncapped pro rata overcall is 16.67 ÷ 43.33 = 38.5% of each partner's call.
Overcalli = min(sharei × shortfall, cap × calli, unfundedi − calli)
Excel, with the shortfall in B2, the partner's call in C5, the total paying calls in C9, the cap in B3 and the partner's unfunded in D5: =MIN(C5/$C$9*$B$2,$B$3*C5,D5-C5). If one partner hits a limit, the remainder is offered to the others pro rata until every partner is at a limit or the gap is closed.
| Partner group | Own call | Overcall | Total funded | Share of deal, planned | Share of deal, after |
|---|---|---|---|---|---|
| Pension group | 26.67 | 6.67 | 33.33 | 44.4% | 55.6% |
| Insurers and family offices | 13.33 | 3.33 | 16.67 | 22.2% | 27.8% |
| Fund of funds | 3.33 | 0.83 | 4.17 | 5.6% | 6.9% |
| Funded by partners | 43.33 | 10.83 | 54.17 |
The cap binds for everyone: each partner funds 25.0 per cent more than its own call, and $5.83m is left over. The general partner now has to bridge it, typically with the subscription line while the default remedies run, or by selling down part of the deal as a co-investment, or by cutting the ticket. For an investor with a $10m commitment in the pension group, the call was $1.333m and the overcall $0.333m, $1.667m in all.
The overcall is not extra money. It is drawn from each partner's unfunded commitment, so the pension group's unfunded falls from 60.0 to 26.67 instead of to 33.33. It is a reallocation of the remaining commitment towards one deal: the partners who pay end up more concentrated in that investment, here owning a quarter more of it than planned, and have less left for later calls.
| Unfunded before the call | No overcall | Cap 25% | Cap 50% | Cap 100% |
|---|---|---|---|---|
| 30% | 16.67 | 5.83 | 0.00 | 0.00 |
| 20% | 16.67 | 5.83 | 0.00 | 0.00 |
| 16% | 16.67 | 8.00 | 8.00 | 8.00 |
Early in the fund the cap is the only limit that matters: any cap at or above 38.5 per cent closes the gap. Late in the fund the unfunded commitment takes over. With 16 per cent unfunded, the own call of 13.33 per cent leaves only 2.67 per cent of commitment to overcall, $8.67m in total, and no cap, however generous, raises it: any cap of 20 per cent or more leaves the same $8.00m uncovered. It is also the stage at which a shortfall is hardest to replace from new money.
Price the overcall the day you sign: compute the uncapped percentage for a plausible default by your largest co-investor, then check it against the cap and against the unfunded you will have in year six, not year two. What the defaulter loses is worked in what it costs an LP to default on a capital call, the excused-investor allocation in how a capital call is allocated when an investor is excused, and the LPA models are in the free workbooks for this book.
A right for the general partner to call the non-defaulting partners for a defaulting partner's share of a capital call, usually pro rata and within a cap. In the illustrative case the anchor misses $16.67m of a $60.0m call, and the other participating partners can be asked for up to 25 per cent more than their own calls, $10.83m in total.
No. It is drawn from your unfunded commitment, so it brings forward money you had already promised and concentrates it in one deal. A pension group with $60.0m unfunded that funds a $26.67m call and a $6.67m overcall is left with $26.67m unfunded rather than $33.33m, and owns 55.6 per cent of the deal instead of 44.4.
Because no partner can be called beyond its unfunded commitment. With 16 per cent unfunded and a 13.33 per cent call, each partner has only 2.67 per cent of commitment left to overcall, so $8.00m of the $16.67m shortfall stays uncovered however generous the cap, and the general partner has to bridge or sell down the deal.
This article is one calculation from How to Read a Limited Partnership Agreement. 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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