Cash for Calls: A Quantitative Approach to Managing Liquidity for Capital Calls

Investors in private assets typically must commit their funds to an asset manager. It is only after those funds are called at some unknown later date that investors receive exposure to the desired assets. We review data on calls and distributions for private equity and private debt funds over the past 30 years. We characterize the speed of calls and distributions for each asset, the impact the call speed (or lack thereof) has on investors’ realized return on their committed capital, and the extent to which this call risk can be diversified across managers. Finally, we use the historical call data to illustrate “liquidity tiering,” an asset allocation strategy that helps investors manage against their future commitments.