Underwriting Standards
Underwriting standards are the consistent rules and thresholds a manager uses to evaluate deals and control downside risk.
Definition
Definition Underwriting standards are the repeatable criteria a manager applies before investing: acceptable leverage, valuation ranges, margin of safety, covenant requirements (in credit), governance rights, exit assumptions, and scenario tolerances. Standards prevent decision-making from becoming purely opportunistic or narrative-driven. Allocator Context Allocators look for evidence that underwriting standards are real and enforced—especially when markets become competitive. Institutions compare a manager’s stated standards against actual portfolio behavior. When outcomes worsen, allocators will ask whether underwriting standards held or were compromised to maintain deployment pace. Decision Authority Underwriting standards affect committee comfort with risk profile and sustainability. In many allocators, weak underwriting discipline is a “quiet killer”: it doesn’t always block the first commitment, but it almost always blocks the re-up. Why It Matters for Fundraising Managers who can state underwriting standards clearly—and show examples of walking away from deals—gain credibility. LPs are not looking for perfection; they are looking for discipline under pressure. Key Takeaways Standards create repeatability and risk control Competitive markets test discipline Divergence between stated and actual standards is a red flag Underwriting discipline supports long-term fundraising success