Hard Cap
A hard cap is the maximum fund size a manager is permitted to raise, as defined in fund documents.
Allocator relevance: Signals capacity discipline and can create access constraints that affect allocation timing and negotiation leverage.
Expanded Definition
Hard caps are used to prevent strategy dilution and preserve opportunity quality. In hot fundraising environments, hard caps can drive oversubscription and compress diligence timelines. For allocators, hard caps are relevant because they affect whether you can get an allocation, the size you can get, and how the manager prioritizes LP relationships.
Hard caps should be evaluated alongside capacity and deployment pace to ensure the cap is credible and not purely marketing.
How It Works in Practice
Managers set a hard cap in the LPA/PPM and allocate capacity among LPs. Late-stage investors may receive reduced allocations or be shut out. Some funds also have soft caps to guide target size before reaching the hard limit.
Decision Authority and Governance
Governance requires clarity on allocation policies (fairness, prioritization) and conflict management if the manager runs multiple vehicles competing for the same opportunity set.
Common Misconceptions
- Hard caps always protect performance.
- Hard cap means the fund is fully subscribed.
- Raising to the hard cap is always optimal.
Key Takeaways
- Hard caps create real access constraints.
- Evaluate whether cap matches true capacity.
- Hard caps can increase pressure and shorten timelines.