One of 2017’s most hotly debated topics in the world of private equity involved the use of subscription credit facilities by private funds that employ a capital call structure. This grew into a debate in which seemingly everyone – including bloggers, reporters, investment consultants and even one of the co-founders of Oaktree Capital Management
, Howard Marks – wanted to participate. In June 2017, the Institutional Limited Partners Association (ILPA) issued guidance articulating its own views on several issues that comprise this debate, which shined an even brighter spotlight on a topic that was already receiving significant attention. This final article of our three-part series on subscription credit facilities reviews the ILPA guidance and its corresponding effect on these credit facilities, as well as two of the most controversial aspects of these facilities: the impact a subscription credit facility has on a fund’s internal rate of return and the use of these facilities by investment managers for longer-term financing. The first article
provided background on the types of funds that frequently use these facilities, recent trends that have emerged regarding this form of financing, basic mechanics of these facilities’ structures and the types of lenders that routinely offer these products. The second article
discussed the primary advantages to funds, sponsors and investors of using these facilities and explored the legal documents that govern them. For coverage of ILPA guidance on other issues affecting the private funds industry, see “How Managers May Address Increasing Demands of Limited Partners for Standardized Reporting of Fund Fees and Expenses
” (Sep. 1, 2016).