A capital call, also known as a drawdown, is a formal notice from a private investment fund (like a private equity fund or a venture capital fund) to its investors (usually referred to as limited partners) asking them to send a portion of the capital they committed to invest in the fund.
When an investor agrees to participate in a fund, they sign a commitment to provide a certain amount of capital to the fund. However, the fund manager doesn't typically require all of this capital upfront. Instead, they call for or "draw down" the capital as needed for investments and expenses.
When the fund manager identifies an investment opportunity or needs to cover operating expenses, they issue a capital call to the limited partners. This notice provides details such as the amount of capital required, the purpose of the drawdown, and the deadline by which the capital must be transferred.
Capital calls are a standard part of the operation of private investment funds and are used to ensure that the fund has the necessary capital available when investment opportunities arise, without requiring investors to commit all of their capital upfront.
