Treasury management, subscription credit facilities, and banking relationships
Banking relationships for private equity funds extend well beyond simple deposit accounts. PE managers must establish treasury infrastructure that supports capital call funding, distribution processing, and portfolio company transactions while maintaining appropriate controls and segregation. Subscription credit facilities have become nearly ubiquitous, providing flexible capital to bridge LP capital calls and potentially enhance reported returns. Managing these banking relationships effectively requires coordination across finance, investor relations, and investment teams.
Most PE funds maintain multiple bank accounts to support fund operations. At minimum, funds typically maintain a primary operating account for capital calls and distributions, with additional accounts for specific purposes such as escrow holdbacks, management fee collection, or foreign currency transactions. Clear policies governing account usage, signatory authority, and reconciliation help maintain control over fund cash.
Bank selection for PE funds involves considerations beyond retail banking relationships. Relevant factors include the bank's experience with fund structures, wire transfer capabilities and cutoff times, online banking functionality, reporting integration with fund administration systems, and the bank's willingness to provide credit facilities. Many PE managers maintain relationships with multiple banks to ensure operational continuity and access to credit.
Subscription lines of credit, also called capital call facilities, allow funds to borrow against unfunded LP commitments rather than calling capital from investors for each transaction. These facilities provide operational flexibility, enabling funds to close deals quickly without coordinating LP capital calls and to aggregate multiple smaller calls into less frequent, larger capital calls.
Typical subscription facility structures include a borrowing base calculated as a percentage of eligible unfunded commitments, with advance rates often ranging from 60% to 90% depending on LP credit quality. Lenders evaluate the LP roster, with higher advance rates for institutional investors with strong credit profiles. Facilities may be committed or uncommitted, secured or unsecured, and bilateral or syndicated depending on fund size and manager preferences.
The use of subscription facilities affects fund performance metrics. By delaying capital calls, facilities can increase reported IRR since returns are measured from when capital is actually called rather than when deals close. However, extended facility usage may decrease TVPI multiples due to accumulated interest expense. LP perspectives on facility usage vary, and managers should establish clear policies and disclosure practices around subscription line utilization.
Cash management for PE funds involves balancing the need for liquidity with yield optimization on temporarily held cash. Unlike liquid funds with daily cash needs, PE funds may hold significant cash balances between capital calls and deployment or between realizations and distributions. Treasury policies should address permissible investments, concentration limits, and procedures for managing temporary cash.
Capital call timing and cash forecasting require coordination between deal teams, investor relations, and treasury. The treasury function must ensure sufficient liquidity for pending transactions while avoiding excessive borrowing costs or idle cash. Many managers develop rolling cash forecasts that project expected capital needs against available resources, including subscription facility capacity.
PE managers often influence portfolio company banking relationships, particularly for add-on acquisitions or refinancing situations. Understanding the portfolio company banking landscape, including relationship banks, credit facilities, and cash management structures, helps managers support portfolio company treasury operations and identify opportunities for improvement.
Some PE firms negotiate fee arrangements with banks that provide services across multiple portfolio companies, potentially achieving better pricing through aggregated relationships. These arrangements require careful structuring to ensure appropriate allocation of benefits between the fund and portfolio companies.
Bank relationship management becomes particularly important during credit market stress. Maintaining strong relationships with multiple banks provides optionality if one lender reduces exposure or changes terms. Regular communication with relationship bankers, even during periods of limited borrowing activity, helps preserve access to credit when needed.
LP disclosure practices around subscription facility usage have evolved. Many institutional LPs now request information about facility terms, utilization levels, and the impact on reported performance. Managers should develop consistent approaches to facility disclosure in quarterly reports and DDQ responses.