Fund Structure
Capital Commitment
Commitment
The total amount an LP pledges to invest in a fund over its investment period.
Capital commitment is the total amount a limited partner agrees to invest in a private equity fund. This commitment is made at the fund's closing but is not invested all at once - instead, the GP "calls" capital as needed for investments.
Key aspects
- Legally binding agreement
- Typically called over 3-5 year investment period
- May not be fully called (90-100% is typical)
- Unfunded commitment represents remaining obligation
For LPs
- Must maintain liquidity to meet capital calls
- Commitment is an obligation, not an option
- Failure to meet calls has serious consequences
Commitment period
- Most funds have a 5-year investment period during which the GP can call committed capital for new investments.
Example
An LP with a $100M commitment to a fund that has called 60% has contributed $60M and has $40M in unfunded commitments.
Related Terms
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