Dry Powder
Dry powder is the amount of capital a GP (or allocator) still has available to deploy—typically uninvested fund capacity or portfolio budget room—after accounting for constraints like pacing, reserves, and mandate limits.
Allocator relevance: A timing and pacing signal—indicates remaining deployable capacity and whether a manager can support winners, maintain deal velocity, or faces deployment pressure and trade-offs.
Expanded Definition
Dry powder is the remaining capital capacity available to deploy—how much a fund can still invest in new deals and follow-ons within its constraints. It is often described as “capital left,” but the operational meaning is deployable capacity under rules: reserves policy, investment period limits, concentration thresholds, and governance approvals.
Dry powder matters because it influences behavior. High dry powder can create deployment pressure and faster pacing; low dry powder can restrict follow-on support and reduce flexibility late in the investment period. Two managers can report similar remaining capital while having very different real flexibility based on reserve needs, pipeline quality, and decision cadence.
How It Works in Practice
Managers forecast deployment at fund formation, then re-forecast continuously as portfolio outcomes become clearer. Dry powder is managed through trade-offs: new deal diversification versus follow-on concentration into winners. Late-cycle opportunities are often the hardest—capacity exists on paper, but reserves needs and governance discipline can limit true flexibility.
Allocators pay attention to whether a manager’s dry powder position aligns with stated pacing and whether remaining capacity is realistically deployable.
Decision Authority and Governance
Governance defines who controls remaining capacity and how exceptions are approved—especially for larger follow-ons or late investment-period deployments. Allocators may evaluate dry powder discipline through reporting: whether reserve usage and deployment pace are consistent with stated policy and whether the manager is transparent about trade-offs.
Common Misconceptions
Dry powder equals cash on hand.
More dry powder always means the fund is healthy.
Dry powder is a single objective number across managers.
Key Takeaways
Dry powder is deployable capacity under constraints.
It drives pacing behavior and follow-on flexibility.
Evaluate it alongside reserves discipline and investment period timing.