I was having lunch with a friend today, and we were discussing one of his projects. When does the “pref” clock start? Is it when funds are drawn, or when the capital committed? I always thought the clock doesn’t start until you draw down the LP equity, but he made me think otherwise.
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It depends on the docs. Some people will start the clock when drawn, others will start the clock when committed.
Whatever the docs say, but typically when the funds are drawn. If the clock starts when the capital is committed the firm would be incentivized to call all the capital immediately, which seems inefficient unless there's a strong acquisition pipeline.
It starts when the capital is actually called. Many funds will use subscription facilities to bridge capital calls to juice IRR even further.
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