How should a fund handle FX on capital calls from investors in another currency?
Map the call from notice to deployment and decide, at each step, who converts, when and at what rate. Doing nothing usually means the bank converts on receipt at its standard margin.
| Step | What happens | Where FX risk sits | Where FX cost sits |
|---|---|---|---|
| 1. Notice issued | The manager calls capital in the currency set by the fund documents, often giving investors around 10 business days to pay | With the fund if the deployment currency differs from the call currency | None yet |
| 2. Investors pay | Investors convert their own money if the call currency is not theirs | With each investor until they convert | Each investor's own bank margin, often on small amounts |
| 3. Money arrives | Funds land in the fund's collection account, sometimes in several currencies | With the fund from receipt | Bank fees on receipt, and an automatic conversion if the account is single currency |
| 4. Convert or hold | The fund converts into the deployment currency, or holds the currency it received | With the fund for as long as it holds the wrong currency | The spread on the conversion, which is where most of the cost is |
| 5. Deploy | Money goes to a completion, a portfolio company or to repay a subscription line | Ends once the currency matches the use | Payment fees, and a second conversion if step 4 picked the wrong currency |
| 6. Distribute | Proceeds go back to investors, often in the fund currency | Back with investors who convert again | The fund's conversion spread, then each investor's own |
The table shows why the conversion at step 4 matters most: it is usually the largest single trade in the cycle, and it is the one the fund controls.
Should investors pay in their own currency or the fund's?
The fund documents usually decide: most funds call capital in the fund currency and leave each investor to convert. Some funds collect in local currency instead and convert once, in bulk.
When investors convert themselves, each pays their own bank's margin, often on amounts too small to price well, and the fund has no visibility of it. Collecting in an investor's local currency, through a collection account with local details, moves the conversion to the fund, which can then do one larger trade at a better spread. The trade-off is that the fund now carries the currency until it converts, and reconciliation needs clear payment references from every investor.
Either approach can work. What matters is choosing it deliberately and writing it into the notice, rather than discovering after the first call that money arrived in currencies nobody planned for.
Should we convert straight away or hold the currency?
Convert when you know what the money will be spent in. Hold it when it will be paid out in the same currency it arrived in.
If a US dollar call is going straight into a US dollar completion, converting to sterling and back costs two spreads for nothing. If the call is for a sterling deal, converting on receipt removes the currency risk and the decision. Holding is easier when the fund has a multi-currency account in its own name; with a single-currency bank account, incoming foreign currency is often converted automatically at the bank's standard rate.
If calls are used to repay a subscription line, check which currency the line is drawn in. Repaying a dollar drawing with sterling call proceeds means a conversion you can plan for rather than one that happens by default.
How do distributions back to investors work across currencies?
Most funds distribute in the fund currency and let investors convert. Where the fund converts on investors' behalf, one bulk conversion usually prices better than many small ones.
A distribution often follows an exit in another currency, so the fund may already be holding proceeds in, say, euros. Converting once into the fund currency and paying everyone the same way is simplest. Paying some investors in their own currency is a service some funds offer, but it needs the investor's agreement, an up-to-date record of their account in that currency, and a clear policy on which rate is used.
Before any distribution, confirm each investor's bank details from your records or your administrator's file. A change of details requested by email is a classic fraud route and should be verified by phone on a number you already hold.
What changes on capital call notices and wiring instructions?
State the currency, amount, value date and receiving account clearly, and change account details only through channels investors already trust.
- The call currency, the amount per investor in that currency and the date funds must arrive.
- The receiving account name, which should match the fund entity exactly, and its details for that currency.
- The payment reference investors must quote so your administrator can match receipts.
- If receiving details change, an explanation in the notice and a request that investors confirm by phone before paying.
- Who to call with questions, on a number investors already have.
When a fund moves its FX or collection accounts, the first notice to the new account is the riskiest moment. Our guide to switching provider without disruption covers how to manage it.
What do investor relations teams need to know?
Which currency investors pay in, who bears the conversion cost, and how to answer an investor who asks why their money arrived short.
Short receipts are usually deductions by intermediary banks on international payments, or an investor's bank converting at its own rate. Asking investors to send payments with all charges paid by the sender, and to pay in the call currency from an account in that currency where they can, prevents most of them. Your administrator can usually tell you which investors regularly arrive short.
To see what your fund pays on its call and distribution conversions now, ask for a cost review. To price your next call, request a blind quote. For private equity funds, see FX across the fund life.