Updated · Part of the CRE investment glossary
How a capital call works in a fund
In a closed-end fund, each investor signs a capital commitment at closing: a promise to contribute up to a set amount when the GP asks. The fund does not take the money on day one. It calls capital as it needs it, to buy assets, fund capital projects or pay fees and partnership expenses.
Each call is a percentage of commitments, allocated pro rata unless the limited partnership agreement (LPA) says otherwise. The GP sends a notice with the amount due, the purpose, the due date and funding instructions. Investors wire or send ACH, and each contribution is recorded on the date the money arrives, because the pref and investor IRR run from that date.
Capital calls in a syndication
A single-asset syndication usually works the other way. Investors fund their whole subscription at closing, so there is no unfunded commitment left to call. A call appears later only if the operating agreement lets the manager ask members for more capital, for example to cover an operating shortfall, a capex overrun or a loan paydown at refinance.
Those calls are often optional. A member who funds keeps or grows their share; a member who does not is diluted under the formula in the agreement. Some agreements give the new money a priority return. With a simple pro rata formula: a $3,000,000 class calls $300,000, and a member who owns 5% does not fund. Total capital becomes $3,300,000, and their $150,000 now owns about 4.55%.
Unfunded commitment: the formula
Every fund investor has three numbers that must always tie: commitment, contributed capital and unfunded commitment.
Unfunded commitment = capital commitment − capital contributed to date
- Capital commitment: the amount in the signed subscription.
- Contributed to date: every call the investor has funded.
- Some fund agreements let the GP recall certain distributions, which adds back to the unfunded amount. Check the definition.
Worked example: three calls on one commitment
A fund has $10,000,000 of commitments. An LP commits $250,000, or 2.5% of the fund. The GP calls 25% at the first close, 20% for a second acquisition and 15% for capital projects. Each call is pro rata, so the LP pays 2.5% of every fund-level call.
After three calls the LP has contributed $150,000, which is 60% of the commitment, and owes up to $100,000 more over the life of the fund.
| Call | Fund called | LP pays | LP called to date | LP unfunded |
|---|---|---|---|---|
| 1 (25%) | $2,500,000 | $62,500 | $62,500 | $187,500 |
| 2 (20%) | $2,000,000 | $50,000 | $112,500 | $137,500 |
| 3 (15%) | $1,500,000 | $37,500 | $150,000 | $100,000 |
When an investor does not fund: default remedies
A missed call leaves a hole in the deal, so agreements spell out what happens. The remedies are set by the LPA or operating agreement, and they commonly include:
- Interest on the late amount, often after a short cure period.
- Suspension of distributions and voting rights until the default is cured.
- Forfeiture of part of the defaulting investor’s interest or capital account.
- A forced sale of the interest, sometimes to other partners at a discount.
- Dilution, with non-defaulting partners covering the shortfall.
What to watch for
Late payments are often administrative: an IRA custodian that needs paperwork, a missed email, a changed bank. Send notices early, call before you invoke a remedy, and apply remedies the same way to everyone. The notice itself should follow your agreement’s notice period and allocation basis, show balances before and after the call, and protect the funding instructions from wire fraud.
General information, not legal, tax or investment advice. Your operating agreement, offering documents, counsel and CPA govern your deal.