Ahead of SuperReturn CFO/COO, Shailen Patel, Managing Director, NLC, examines how subscription lines are evolving from operational bridging facilities into more strategic tools for managing liquidity, capital calls and distributions across the fund lifecycle.

Liquidity pressure brings subscription lines back into focus

The challenging macroeconomic and geopolitical backdrop has prolonged exit and fundraising timelines, prompting fund managers to adapt how they manage liquidity and returns. Private equity distributions accounted for just 6% of AUM in the 12 months to June 2025, compared with an average of 16% between 2015 and 2019. Five-year rolling distributions to paid-in capital (DPI) as a share of AUM fell to its lowest recorded level, while delayed exits and constrained liquidity have become major concerns for investors.

In response, managers are increasingly turning to continuation vehicles, NAV and hybrid facilities to generate liquidity and return capital to investors later in a fund’s life. Earlier in the fund lifecycle, there has also been an explosion in the number of rated feeders and collateralised fund obligation (CFO) structures used to support fundraising, requiring the fund finance market to adapt.

However, some of these financing needs may be better served by the traditional subscription line or capital-call facility. As a result, subscription lines are back in vogue and are being used by forward-looking managers to optimise fund returns and DPI.

Why subscription lines have endured

Subscription lines have a long history and remain the foundation of fund finance. They are typically put in place at or shortly after first close and often remain available throughout the investment period.

Traditionally, subscription lines have been revolving credit facilities secured against investors’ uncalled capital commitments, with borrowing availability determined by the composition and quality of the investor base. Facilities were commonly structured with approximately 1.5x cover, equivalent to an advance rate of roughly 65%.

Importantly, subscription lines are not leverage in the conventional sense. They do not increase investable capital, as the size of the fund remains the ultimate constraint. Instead, they provide three main benefits:

1. Flexibility: They bridge capital calls and reduce call frequency, giving managers greater control over cash flows.
2. Cost-effectiveness: Subscription lines remain one of the cheapest forms of fund-level borrowing.
3. IRR enhancement: By delaying capital calls, subscription facilities can improve reported IRR. This remains a key performance metric for many LPs, even as DPI has risen in importance.

None of this is new. What has changed is how managers are using subscription facilities and how the market has adapted them to meet evolving liquidity needs.&nbs

What has changed is how managers are using subscription facilities and how the market has adapted them to meet evolving liquidity needs.
Shailen Patel, Managing Director, NLC

How managers are extracting more value from subscription lines

Historically, subscription lines were used primarily for operational purposes, bridging capital calls for periods of up to 12 months. Private markets managers now see scope to use this financing more strategically.

These uses include extracting more capacity from the borrowing base through higher advance rates and subordinated tranches, extending facility duration, providing exit bridges and refinancing more expensive net asset value (NAV) loans.

Unlocking more capacity from the borrowing base

A. Borrowing base efficiency

Borrowing-base methodologies continue to evolve. More of an investor base can now contribute towards facility availability, while stronger treatment of high-quality commitments can support significantly higher advance rates.

Advance rates of around 83%, equivalent to 1.2x cover, are increasingly achievable given the favourable treatment of funds of funds and high-net-worth investors.

The following example shows the potential effect.

Example: The effect of borrowing-base optimisation

Fact pattern:

• A €1 billion fund with a 30% cap on subscription-line borrowing.
• The fund manager ultimately wants to deploy €940 million.
• The current revolving credit facility has a covenant level of 1.5x under Scenario A.
• A covenant level of 1.2x has been offered under Scenario B.

The advantages are clear: less capital needs to be drawn from investors, reducing pressure on DPI while creating a more efficient financing structure and enhancing IRR.

B. Extending capacity with Tranche B facilities

Tranche B structures build on this concept by providing additional borrowing capacity. Although priced higher to reflect the increased risk, they can push effective borrowing-base coverage closer to 1x and provide further flexibility.

C. Longer duration
Subscription facilities are no longer limited to short-term bridge financing. Tenors of five to seven years are increasingly available, reflecting the fact that many managers do not require the traditional clean-down provisions once associated with these facilities.

D. Exit bridges
Exit bridges have also become more common. Where the sale of a portfolio company has been agreed but the proceeds are delayed, these facilities can accelerate distributions to LPs. Structurally, they resemble subscription facilities but are designed around a specific liquidity event and can provide a significant DPI benefit.

E. Refinancing NAV facilities
Are subscription lines really being used to refinance NAV facilities? The answer is both yes and no.

As subscription facilities become more flexible, their potential uses continue to expand. In some situations, managers may be able to avoid or delay the need for a NAV or hybrid facility altogether. Amending an existing subscription line is often simpler, cheaper and more acceptable to LPs than introducing a new financing structure.

That said, NAV financing still has an important role. Eventually, uncalled capital declines or is exhausted, reducing the borrowing capacity available through a subscription facility. At that point, NAV-based lending may become the most effective solution for legitimate liquidity requirements.

What has changed is that this point may occur later in the fund lifecycle than it did previously. By then, asset realisations or recallable distributions may have reduced or eliminated the need for NAV financing altogether. The additional flexibility still requires careful management. Fund managers should weigh the liquidity benefits against the cost and terms of the facility, consider how delayed capital calls affect reported performance and communicate clearly with LPs about how and why the facility is being used.

How non-bank capital is meeting demand

New capital providers, particularly those outside the traditional banking market, have introduced different funding models to support demand for more flexible subscription facilities. In some cases, facilities can be provided on demand without commitment fees.

A subscription facility may begin life as a straightforward capital-call bridge but evolve alongside a fund’s liquidity needs.
Shailen Patel, Managing Director, NLC

This can deliver meaningful savings, given that many traditional revolving credit facilities are only partially utilised. Growth in this market, usually financed through term loans, has been significant over the past few years. An established tool finding renewed relevance A subscription facility may begin as a straightforward capital-call bridge but evolve alongside a fund’s liquidity needs. Additional tranches, longer tenors and exit bridges can provide flexibility throughout the lifecycle and defer the need for more complex and expensive solutions.

Sometimes what comes into vogue is not a new idea, but an established one finding renewed relevance.