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ILPA on how to estimate sub line exposure

ILPA outlines how LPs can estimate their subscription credit line liability in a draft set of recommendations on disclosures reviewed by Private Funds CFO.

The below is from ILPA’s draft “Enhancing Transparency Around Subscription Lines of Credit: Recommended Disclosures Regarding Exposure, Capital Calls and Performance Impacts.

To monitor exposure to subscription lines, LPs may utilize analytics to get a sense of their outstanding liability due to subscription lines. Data already provided quarterly by the GPs can be used to calculate the exposure to the portfolio value based on an LP’s ownership percentage as compared to the LP’s NAV disclosed in the partners’ capital account statement (PCAP).

  • The two data points required for the calculation are the:
      • Investment values on the balance sheet
      • LP ownership percentage, which may be determined by dividing the LP’s NAV by the fund’s NAV
  • With these data points, the LP can get an estimated exposure by multiplying the investment value x LP ownership percentage. For example, with an investment value of $100 million and an LP ownership of 3 percent, the calculation would be: $100 million x 0.03 = $3 million
  • The estimated exposure and the LP’s NAV may differ because of the GP carry since the investment value is gross of carry and the difference can be compared to the LP’s allocation of carry provided on the PCAP
  • If the exposure is greater than the NAV, it is caused by net other assets
  • If the exposure is less than the NAV, it is caused by liabilities, which will typically be the amount outstanding for the LP’s exposure on that investment through a subscription line
  • Both net other assets and liabilities can be reviewed on the balance sheet