Capital call

A demand from a fund manager for part of the money an investor has committed, made at a time of the manager's choosing.

Example

A commitment of 100,000 drawn in tranches over five years as the manager finds investments.

Important

Until it is called, the money must stay available, so it cannot be put into anything you could not liquidate on demand - which means it earns cash-like returns inside a commitment made for more.

Related terms

• Committed capital — The total amount an investor has contractually agreed to provide to a fund, whether or not it has yet been called.
• Distribution — Cash returned to investors by a fund, typically after an underlying holding is sold or produces income.
• Dry powder — Capital committed to a strategy but deliberately not yet deployed, held so that a future opportunity can be acted on.

Lessons that explain it

• Add up the fees for all ten years before you compare two funds — Management fees are usually quoted as an annual percentage, but what matters is the total over the fund's life, and whether the fee is charged on committed or invested capital. (10 min)
• Buying a whole company, mostly with somebody else's money — A private equity fund buys control of established companies, usually financing much of the price with debt the company itself must repay. (9 min)
• Lock-ups: what you actually give up when you cannot sell — A lock-up is a promise you make about your own future, and you make it without knowing what your future will need. Here is what is on the other side of that promise. (10 min)
• LPs provide the money; GPs make the decisions — Most private funds are partnerships between limited partners, who commit capital and have limited liability and control, and a general partner, who manages the fund and earns fees and carried interest. (9 min)
• You are not buying startups. You are signing a ten-year promise to a manager. — An LP commitment in a venture fund is a legal obligation to hand over money when asked, for about a decade, to someone who decides everything about how it is used. (10 min)
• A decade locked up, a fifth of it paid in fees, and a tax treatment set by the structure — The main costs of a venture fund are illiquidity, fee drag that compounds, and taxes that depend on where you live and how the fund is set up. (12 min)

All 578 terms in the Investing glossary