Provided by Leslie Cummins and Peter Tropper of the
International Finance Corporation
In this section you will learn more about:
Objective of the First and Subsequent Drawdowns
- A closing is normally followed by the sending of the first draw down notice (also called a capital call). The purpose of the first draw down is normally to cover (i) legal expenses for the Fund’s structuring, (ii) management fees for the first quarter of the Fund’s life, and (iii) if applicable, capital and expenses for the Fund’s first investment. Subsequent draw downs will be for expenses, organizational costs, management and other fees, investments, etc.
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Issues to Consider
- Check the Fund’s legal agreements, which may specify how the draw downs should take place. For instance, a defined amount may be callable from the Investors at the time of the first closing. The legal agreements may also specify the number of days advance notice must be given to the Investors prior to the draw down date. Check also any side letter agreements you may have for draw down specifications.
- Who within the Fund Manager back office team is responsible for draw downs? Are these managed by your staff or by an external Fund administrator to which this task has been outsourced?
- Are your cash management systems in place to handle draw downs and cash balances?
- Prepare your draw down notice carefully, and ensure that it provides as much detail as possible about what you are calling and why. Download this Suggested Draw Down Notice.
- Ensure that a capital account accompanies each draw down notice sent to your Investors. (See “Report Your Progress” to download a Suggested Capital Account statement.)
- Do you have the requisite contact information (name, address, email, fax, etc.) to send the draw down notice to each of your Investors?
- Do you plan to courier, mail, fax, or email the draw down notice?
- How well do you know your Investors’ internal procedures for processing draw down notices? Can your Investors manage just-in-time draw down requests? Anticipate any questions your Investors may have about the draw down.
- What will you do if an Investor either (i) disburses late, or (ii) does not disburse? What are your Fund’s default provisions? If an Investor does not disburse on time, your first step should be to contact the Investor to learn its intentions and to discuss remediation steps.
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Documents
- Draw down Notice (also called a Capital Call Notice)
- Capital Account
- Correspondence with Investor
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