This article covers the following topics related to LP investment capital and how they are handled by Flow:
- LP fund ownership percentages.
- Capital contributions against commitments received from investors into the funds.
- Unfunded commitments that LPs owe to the fund (either due to unmet capital calls or capital that has yet to be called by the fund manager).
Investor ownership percentages in a fund are calculated based on the following calculation:
(Investor Subscription Amount) / (Total Fund or Subscription Amount)
LP investor ownership percentages can be found in 3 places:
1-The “Investors” page within the “Funds” section of the platform.
2-In the details slide out under the “Investment Details” section on the “Investors” page within the “Funds” section of the platform.
3-In the CSV export from the “Investors” page within the “Funds” section of the platform.
Capital Contributions Against Commitments
Flow is able to determine the implied Contribution amount (Contribution against commitments) from an investor wire transfer received by the fund in cases where the investor is also wiring in the management fees and expense reserves on top of their subscription amount.
Calculation Method (aka Capital Call Methodology)
To support the calculation of contributions against commitments, Flow provides the ability for GPs / Fund Managers to indicate whether the fund called (or will call) additional cash to cover management fees and/or expense reserves in addition to the called capital.
There are three options available to fund managers:
- Contribution — The fund GP called, or will call, the amount that the LP investor subscribed into the fund (or proportion of that amount). The fund has not called, or will not call, additional cash on top of the LP’s subscribed amount.
- Gross — The fund GP called, or will call, the amount that the LP investor subscribed into the fund (or proportion of that amount) plus the management fees owed to the fund.
- Investment — The fund GP called, or will call, the amount that the LP investor subscribed into the fund (or proportion of that amount) plus the management fees owed to the fund AND the expense reserves allocated to the investor.
The Calculation Method field, also known in the form as "Capital Call Methodology" is included in the workflow to create a new fund, both the create new series SPV and new standalone SPV workflows. The change allows GP users to set and utilize the Calculation Method logic when creating a new fund.
The Calculation Method field is included in the “Edit Fund Details” page to allow GP users to update the Calculation Method logic when for an existing fund.
The Calculation Method field is included in the “Add Entity” modal in the “Organizations” page. The change allows GP users to set and utilize the Calculation Method logic when creating a new fund.
Contribution against commitments calculation logic
Based on the fund’s “Calculation Method” setting, Flow will calculate a contribution amount based on the below logic:
When Calculation method = "Contribution" Then Contribution = Wire Received from LP
When Calculation method = "Gross" THEN Contribution = (Wire Received from LP) - (LP management fee amount)
When Calculation method = "Investment" THEN (Wire Received from LP) - (LP management fee amount) - (LP expense reserve allocation amount)
- Complex fee and expense reserves — At this time, Flow does not support calculating contribution amounts for funds which call in management fees and/or expense reserves based on complex terms.
- If your fund has more complex fee and/or expense reserve setting, we recommend that you reach out to Flow team to assist.
- Dependence on assigned wire received amounts — Contribution amounts will always be calculated based on the recorded wire amounts received. There are two ways that wire amounts can be entered:
- Transactions - Wire amounts can be recorded as individual transactions on the Transactions page, either via Plaid integration or manually recorded transactions, which have been assigned to an LP investment.
- Manual entry - Wire amounts can also be recorded in total directly on the investor’s investment in the fund via 1) editing the investor on the “Investors” page, or 2) during the process to add an investor, either through the single entry or bulk entry process.
Flow shows Contributions in a number of locations in the app. Additionally, the application shows a separate Wire Received figure on a number of pages to capture and track the total cash contribution to the fund or SPV.
Additionally, Flow explicitly indicates where the system is asking for the LP investor’s wire received information when editing investor information.
Flow calculates the implied unfunded commitments for an LP investor’s investment in a fund.
Unfunded commitments represent the amount of capital that the LP investor has subscribed into the fund but which the fund manager has not yet called into the fund.
The implied unfunded commitments from an LP investor to the fund is calculated based on the following logic:
(Subscription Amount) - (Contribution Amount)
Flow shows Unfunded Commitments in a number of locations in the app.
The “Investors” page within the “Funds” section of the platform.
The details slide out in the “Investors” page within the “Funds” section of the platform.
The LP Profile Data page within the “Details” page under the “Funds section of the platform.
The CSV export from the “Investors” page within the “Funds” section of the platform as “Under / Over Subscribed”.
Management Fee Estimate
To support the calculation of an implied “contribution against commitments”, Flow calculates an estimate of the management fees (unaudited) which will be charged as of the first period of operation for a fund based on the following calculation:
(Investor Subscription Amount) * (Management Fee Rate)
- Per investor management fee rate — The management fee rate applied per investor will be on an investor by investor basis. If an investor has a side letter which explicitly states a rate, then that rate will be used, otherwise the rate used will be the one specified by the fund terms.
- First annual period estimate — The management fee rate calculated by Flow will be based on the first annual period that the management fee is charged. In effect, this means that the management fee uses the subscription amount as the basis for the fee calculation.
- Annual percentage rate — At this time, the management fee rate applied is assumed to be on an annual basis.
- Complex fee rates — This functionality does not support fee rates which are more complex, such as management fee rates which are charged per month, as a basis of EBITDA, or fixed fees. These cases will be addressed as part of future releases.
Expense Reserve Allocations
To support the calculation of an implied “contribution against commitments”, Flow now calculates the amount of expense reserves which will be allocated to each investor in the fund on a pro rata basis based on the following calculation:
(Fund Expense Reserve) * (Investor Ownership Percentage)
- Ownership updates — As ownership percentage in the fund change due to new investors coming into the fund, changes to investor subscription amounts, etc., the calculation of allocated expense reserves will update in kind.
- Variable expense reserves — At this time, this feature only supports funds which leverage a fixed dollar amount expense reserve. Funds with a variable (ie percentage based) expense reserve will be supported in a future release.