What are "capital calls" in the context of private equity?

In the context of private equity, capital calls refer to requests made by a fund to its limited partners, asking them to provide the agreed-upon investment contributions. When limited partners commit capital to a private equity fund, they do not typically provide all the funds upfront. Instead, the capital is called when the fund is ready to make investments or for operational needs. This structure allows the fund to have capital available as needed and helps manage cash flow for investors.

The significance of capital calls lies in their role in ensuring that the fund has the necessary resources to pursue investment opportunities and cover expenses. It reflects the operational aspect of managing a private equity fund and the relationship between general partners, who manage the fund, and limited partners, who provide capital. This process is crucial for the functioning of private equity funds, emphasizing the importance of timely capital contributions from those investing in the fund.