Committed capital
The total amount investors have promised to contribute to a fund.
LPs do not send all of it upfront. The manager calls it in pieces as it needs cash for investments and fees, which is why committed capital is different from paid in capital.
The difference between committed and paid-in capital is the unfunded commitment, the amount LPs are still legally obliged to provide when called. Funds rarely call 100 percent of commitments, because some is reserved for follow-on investments, fees and expenses that may never be needed in full.
Management fees during the investment period are usually charged on committed capital, which is why LPs look closely at how quickly a manager deploys. A fund that charges fees on $100M but invests only $50M over five years is expensive for its investors.
Worked example
A fund closes with $40M of commitments. After three years it has called $24M, 60 percent, so paid-in capital is $24M and unfunded commitments are $16M. An LP that committed $2M has paid in $1.2M and can still be asked for $800,000.
Common questions about committed capital
What is the difference between committed capital and paid-in capital?
Committed capital is what LPs promise to invest. Paid-in capital is the part already called and sent to the fund. The difference is the unfunded commitment that the GP can still call.
Does a fund ever call all of its committed capital?
Many funds call 85 to 95 percent over their life. The rest may be left uncalled because follow-on reserves or expenses turned out lower than planned.