Overcommitment
Overcommitment is committing more capital than current liquidity because expected distributions and staggered capital calls reduce the need for full funding at once.
Definition
Overcommitment is the practice of committing more than the allocator’s current available capital, based on the expectation that capital will be called over time and that distributions from existing investments will fund future calls. Overcommitment increases capital efficiency but can create risk if distributions slow or calls accelerate. Allocator Context Many institutional private market portfolios rely on controlled overcommitment to maintain target exposure. The risk appears when assumptions break: market stress reduces exits and distributions, while funds continue calling capital. That mismatch can force secondary sales or reduce new commitments. Decision Authority Overcommitment levels are often governed by policy and monitored by finance and investment teams. Committees may set maximum overcommitment ratios and require reporting when utilization rises. Why It Matters for Fundraising Overcommitment risk directly impacts allocator capacity to commit. In periods of lower distributions, allocators may pause new commitments or cut ticket sizes. Managers benefit from understanding this dynamic and timing outreach accordingly. Key Takeaways Improves capital efficiency but increases liquidity risk Assumptions fail in stress regimes Often policy-governed and monitored Can cap commitments even when manager fit is strong