A subscription line is a credit facility a fund borrows against, secured not by its investments but by its investors’ uncalled commitments. Funds use the line to bridge or delay capital calls — an operational convenience with a famous side effect: it mechanically inflates reported IRR.
How subscription lines work and why they matter
The lender advances against the committed capital of the fund’s LP base (credit quality of the LPs, not the portfolio, drives terms), and the fund uses draws to close deals quickly, batch capital calls into tidy quarterly events, and smooth operations — genuine conveniences for GPs and LPs alike. The controversy is measurement: IRR clocks start when LP capital is called, so financing an acquisition on the line for months (or longer) before calling capital shortens the measured holding period and lifts IRR without changing a single deal outcome. Extended use — lines outstanding for a year or more — can add multiple points to early IRRs, scrambling comparisons between funds that use lines differently and against older vintages that couldn’t. The defenses institutional practice has converged on: read MOIC/TVPI alongside IRR (multiples are immune to call timing), look for levered and unlevered IRR disclosure (ILPA guidance pushed sponsors to show both), and check the LPA’s limits on line size and duration. Secondary effects worth a line each: interest costs are borne by the fund (a real drag purchased for reporting polish, in the cynical read), lines delay the J-curve's start rather than eliminate it, and in stress the facility is a claim that gets satisfied before LPs see distributions. NAV loans — borrowing against portfolio value later in fund life — are the related and more contentious cousin.
Related terms
Capital Call · Committed Capital · MOIC · J-Curve · Vintage Year
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