Capital Commitment
A capital commitment is the total amount an LP agrees to provide to a fund over its life, subject to drawdowns.
Allocator relevance: Drives pacing, overcommitment strategy, and long-term exposure control across private market portfolios.
Expanded Definition
Commitments are obligations, not immediate investments. Capital is called over time as opportunities arise, and unfunded commitments represent future liquidity requirements. Managers may charge fees on committed capital during the investment period, making commitment sizing economically meaningful even before full deployment.
Allocators manage commitments as part of portfolio construction, balancing expected cash flows against future capital needs and existing unfunded exposure.
How It Works in Practice
Allocators set commitment budgets annually and track commitments, NAV, unfunded exposure, and distributions. Commitment pacing models estimate future capital calls and expected DPI to maintain target allocation levels.
Decision Authority and Governance
The LPA governs commitment obligations, default remedies, and fund discretion. Governance should ensure commitments are approved within portfolio risk limits and liquidity budgets.
Common Misconceptions
- Commitment equals invested capital.
- Commitments guarantee deployment pace.
- Overcommitment is always reckless.
Key Takeaways
- Commitments create future liquidity obligations.
- Unfunded exposure must be monitored and stress-tested.
- Commitment pacing stabilizes vintage and allocation outcomes.