The average number of capital calls made by private capital funds dropped to 1.9 last year, a 10-year low and down from 4.6 in 2015, according to proprietary research from Investec.
The average number of capital calls made by private capital funds dropped to 1.9 last year, a 10-year low and down from 4.6 in 2015, according to proprietary research from Investec.
The research reveals a long-term decline in the use of capital calls. Since 2015, the frequency of capital calls has reduced each year, aside from a slight uptick in 2020, as the pandemic prompted funds to call on LPs to support existing portfolio companies.
Investec’s analysis mapped ten 10 years’ worth of activity from 45 UK and mainland European private capital funds, ranging from €150 million – €3.75 billion in size. The majority (73%) are private equity funds, with others a combination of secondary, real estate and more niche strategies.
The decline in capital calls comes despite increased investment activity.
The subscription credit facilities market, which has been active for over 20 years, has increased exponentially. In 2000, these facilities were used by just 8.7% of funds; by 2016, the number was 53.4%, according to Preqin. Investec’s new data supports the theory that adoption levels continue to grow, which is further evidenced by the entry of fund finance specific advisers and service providers, with the market today estimated at over $500 billion.
While the decline of capital calls can be largely explained by the increased adoption rate of these facilities, there are other contributory factors.
One is that as funds have become larger, so has the operational burden to make frequent capital calls, and it is therefore more efficient to group them at once or twice per year. Separately, while typically seen as more of an operational tool, subscription facilities are now used to bridge underlying asset debt packages and co-investors, providing deal teams with more time to arrange either syndication or debt. This inherently reduces the pressure and allows for potentially better terms to be negotiated.
