A capital call (also known as a draw down or a capital commitment) is a legal right of an
investment firm or an
insurance firm to demand a portion of the money promised to it by an investor. A capital call fund would be the money that had been committed to the fund. The capital call is the act of actually transferring the promised funds to the investment target. A capital call agreement defines capital call terms.
For example, when an investor buys into a
real estate fund, that fund's managers may wait some time before using the investor's money to buy real estate, either because they are waiting for real estate prices to be favorable, or because they are researching new deals. When they are ready to buy real estate, the fund managers issue a capital call, requiring investors who have
committed money to the fund to transfer that money over.
The fund might also borrow funds instead of using the investor's money. This allows the fund to benefit from
leverage. The financing of the real estate purchase is realized through borrowing from banks. When the fund has reached a certain level of
return
Return may refer to:
In business, economics, and finance
* Return on investment (ROI), the financial gain after an expense.
* Rate of return, the financial term for the profit or loss derived from an investment
* Tax return, a blank document o ...
, capital calls are issued and the borrowing is paid off.
References
External links
Issuing a capital call — Notice — Insurer's duties — Rules.
Rights
Legal terminology
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