What Is Committed Capital?
When an investor subscribes to a private equity or venture fund, it signs a binding commitment to provide a stated amount of capital whenever the general partner calls for it. The sum of all such pledges is the fund's committed capital, the figure quoted when a firm announces it has closed a $2 billion fund, even though little of that money has actually changed hands at closing.
This structure separates private funds from mutual funds, where investors hand over cash immediately. Commitments are drawn only as the GP finds deals, so LP capital is deployed close to when it is needed, which improves the fund's internal rate of return by shortening the time capital sits idle.
How Commitments Are Called and Charged
The GP issues capital calls, typically with around ten business days' notice, to fund investments and expenses as they arise. Most LPAs charge the management fee, commonly 1.5% to 2%, on total committed capital during the investment period of roughly five years, then step the fee base down to invested capital or net asset value for the fund's remaining life.
Capital that has been committed but has yet to be called is the fund's dry powder. LPs must keep that money accessible, since failing to meet a capital call is a serious default that LPAs punish harshly, with remedies that can include forfeiting a large share of the LP's existing stake in the fund.
Why Committed Capital Matters
Fee math flows straight from the number: a $1 billion fund charging 2% on commitments earns $20 million a year during its investment period regardless of how much has been invested, which is why LPs scrutinize whether fees step down appropriately later. Performance metrics also depend on the distinction between committed and paid-in capital, since multiples like DPI and TVPI are measured against what was actually called.
For LPs, unfunded commitments create real portfolio management challenges, most visibly the denominator effect, where a drop in public markets leaves an institution overallocated to private assets it cannot easily trim. Candidates interviewing for private equity or LP-side roles should be able to explain how committed capital differs from paid-in capital, because the terms are often used loosely in conversation but mean different things in fund accounting.
