Subscription monies, capital calls and SPV accounts

A closing is a moment when money and documents have to be true at the same time. The documents half is counsel’s craft. The money half is a factual question: has each contributor’s amount actually arrived, from the person who committed it, under conditions everyone can see. An independent segregated account is how that fact is made demonstrable before anything becomes effective.

Titanium provides custody for private capital structures: subscription proceeds, capital call monies and accounts for special purpose vehicles. This note explains what each account is for and what the documents around it have to settle.

Why investor monies sit with an independent holder

A contributor funding a closing is asked to part with money before the thing it buys exists in final form. Holding that money with a regulated firm that is independent of the manager gives every participant the same position: the funds are segregated under client money arrangements, the conditions on which they move are documented before they arrive, and they move only on the mechanics those documents record. The manager gets something too, which is a clean evidential answer to “has everyone funded”, given by a holder with no stake in the answer.

Subscription accounts and the first closing

Subscription monies are received against the subscription documentation and held until the documented closing conditions are met. The drafting question is the same one that governs every release condition: could a stranger holding only the documents decide whether the condition is met. A stated minimum aggregate commitment evidenced by a certificate in a defined form is a condition an agent can apply. “Once the first closing has occurred” is not, because it asks the agent to determine the very thing the account exists to evidence.

The reciprocal position matters as much as the closing itself. If the conditions are not met by the longstop date, contributors expect their money back without a negotiation. The documents should say to whom each amount returns, on what evidence, and by when. Agreed at the outset, the return leg is mechanical. Left vague, it becomes the first thing a disappointed contributor tests.

Capital calls

A drawdown notice creates a short gap between the call and the deployment, and during that gap the called amounts sit somewhere. Holding them in a segregated account gives the manager a single reconciled position across the contributor base, and gives contributors the same assurance the subscription account gave them at closing: the money is with an independent holder, and it moves on the documented instruction, not before.

Accounts for SPV and deal-by-deal structures

Deal-by-deal investing multiplies the problem, because each vehicle needs its own account, its own documented signatories and its own statements. Each SPV account is established under its own agreement, so the arrangements for one vehicle never blur into another and each vehicle’s position is recorded separately. Where the same sponsor runs several vehicles, the discipline of one account per vehicle with its own instruction mechanics is what keeps an audit trail clean three years later.

Release, and the closing that does not complete

When the closing occurs, release follows the documented instruction: to the fund, to the target, to a distribution across several recipients where the structure requires it. When it does not, return follows the mechanics recorded at the start. In neither case does the agent decide which of the two has happened. It acts on the instruction or the specified evidence, which is precisely why the account is worth having (an agent with a view on whether your closing occurred is an agent both sides will eventually disagree with).

Onboarding a contributor base

Every funding party is onboarded: identity, authority and source of funds, with enhanced due diligence applied on a risk-assessed basis. The number of contributors is the single best predictor of the timetable, for the same reason payee count predicts a distribution: each contributor is a person or entity who has to respond. Starting onboarding when the subscription documents go out, rather than when the closing date is fixed, is the cheapest acceleration available.

Outside the role

Titanium expresses no view on the fund’s terms, the merits of any investment or the sufficiency of any commitment. It does not calculate allocations, determine whether a closing condition has been satisfied, or assess compliance with fund documentation. It holds the amounts and moves them in accordance with the account agreement and valid authorised instructions, or against documentary evidence expressly specified in that agreement, subject to applicable law and regulatory requirements.

For managers planning a closing this year: does your subscription documentation say, in terms a stranger could operate, what happens to contributor monies if the closing conditions are not met by the longstop? Tell us about the structure and we will confirm what we can hold and how the account would be documented.