Capital Call Procedure: Case Study
I have a take-home case study where I have to develop a process and timeline for capital calls to be sent to investors with enough info and with enough time for the investor to wire money to the fund in time for the fund to invest in the underlier. I have a hedge fund background with light PE experience. I realize this isn't front office stuff but does anyone have insight in what they are looking for? Are they looking for a procedure detailing the info gathering process required to fill out the ILPA template? Is the ILPA template required or a best practice suggestion? I'm not sure what's so complicated about the timeline? ANy insight would be appreciated. They say investors have ability to choose to make new or additional investments.
This is not a traditional fund if the investors get to "choose to make new investments". That vs. a traditional captive 10 year fund have extremely different impacts on what you provide at each capital call. In this situation, you probably need to provide a summary deal memo/deck from your firm's investment committee + status of deal due diligence and 3rd part diligence (QofE, legal, regulatory, compliance, insurance, source code if software company, etc.). Also, depending on the relationship with your LPs/Co-investors, you may offer to orchestrate a collective Q&A call will management where LPs submit questions before hand and you hold a call where they just listen to you ask their aggregated questions and then maybe you have some follow up Q&A at the end.
The way I think about what you are describing is what I've had to do on deals when we ask our LP's to co-invest beyond their LP commitment. We would do this when the equity check was larger then we wanted to pa out of the fund so we weren't over-concentrated to any one investment.
Traditional Capital Calls: I have a LP stake in two traditional captive 10 funds and the capital calls have nothing in them. This is literally the 1 page write up I got on April 6th for a capital call funding due April 22nd:
April 6, 2016 Capital Call Notice for [LP Name - in this case me] [PE Firm] is calling for 10% of the capital commitments to be contributed on or before Friday, April 22, 2016. This capital call will be used to fund investments and operating expenses. Details of the investments and expenses will be provided in the financial statements following the close of the quarter.
The following table summarizes your commitment: Capital Commitment [Total you committed to the entire fund] Previously contributed [Amount of that total commitment funded to date] Current call [in this scenario, 10% x the entire commitment you made over the fund life]
On or before Friday, April 22, 2016 please wire the amount of [this call's commitment] to the fund: Account Name Account Number Account Address Bank Name Bank Address Bank Routing Bank SWIFT ID
We would appreciate the wire transfer be made on a basis so that wires charges are not deducted from the wire amount. Your timely response to the above is appreciated. If you require additional information to make this capital call please contact the undersigned by return email.
Sincerely, [Fund CFO]
Great. Thanks Bambino. Appreciate the response
JAM Capital?
http://www.businesswire.com/news/home/20160408005616/en/Newt-Gingrich-J…
Quick Q - Capital Call(s) (Originally Posted: 09/25/2013)
Typically in an LPA...what's the policy regarding an overfunded capital call...say $9MM was called and only $7MM was needed. Is it refunded??? Or is there going to be a specific section in an LPA unique to each LP/GP/Fund?
It's typically treated as a positive capital call returned back to the LP that increases your unfunded, so yes the $2MM gets returned.
Thank you @m8. Just can't find the provision in the LPA! Because it wouldn't be classified as a proceed right?
Yea, M8 is right. It isn't classified as a distribution but rather a recallable distribution and gets put back into your unfunded.
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