Subscription Lines: Growing Tensions Between Fund Managers and Investors

July 19, 2017

by: Serge Nehama

The use of subscription lines to cover capital calls has evolved from short term bridge facilities (generally paid off within 90 days) into longer term facilities used by fund managers for cash management and greater flexibility in completing transactions, through the avoidance of the immediate need to call for capital from the fund’s limited investors.  This expended use of subscription lines, however, has raised certain issues for limited partners in connection with and the alignment of their economic interests in subscription line use with the interests of the general partner.  The Institutional Limited Partners Association (ILPA) recently published new guidance in this area:  Subscription Lines of Credit and Alignment of Interests: Considerations and Best Practices for Limited and General Partners (June 2017).

Major areas of the ILPA’s concern with the use of subscription

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