Question 1

What is a capital call?

Accepted Answer

A capital call is a request from an investment fund for investors to contribute part of the money they previously committed. Funds typically call capital as needed for investments, fees, or expenses rather than collecting everything upfront. Investors must pay by the specified deadline or risk penalties under the fund’s governing documents.

Question 2

What happens if you miss a capital call?

Accepted Answer

Missing a capital call is a serious default under most fund agreements. Penalties can include interest charges, loss of future distributions, a forced sale of your interest at a discount, or forfeiture of part of what you have already invested. Before committing, investors should keep enough liquid reserves to meet calls over the fund's investment period.

Question 3

What is an unfunded commitment?

Accepted Answer

An unfunded commitment is the part of your pledged capital the fund has not yet called. If you commit $500,000 and the fund has called $200,000, your unfunded commitment is $300,000. You remain obligated to pay it when called, usually over the first three to five years of the fund. Planning for it is part of planning your cash.

Question 4

How often do capital calls happen?

Accepted Answer

There is no fixed schedule. Most calls come during a fund's investment period, typically the first three to five years, whenever the manager finds a new investment or needs to pay fees and expenses. A fund might call capital several times a year. Notices usually give about ten business days to pay.

What is a capital call?