Commitment

Many funds are structured so that all or part of the fund capital stays with the investor until needed and is then called. "Commitment" describes the investor's promise to finance the fund up to a certain amount (see GP and LP Commitment).

The amount the GP commits to invest in the fund. Limited Partners typically expect the GP to invest substantially in the fund being raised - usually at least one percent of total committed capital.

The amount an LP has committed to invest. The LP's liability is generally capped at its commitment, unlike the General Partner's, which is normally unlimited - which is why the GP is usually a limited-liability company.

The GP may have authority to draw an additional amount above the stated commitment, and to recall amounts previously distributed; any such conditions are detailed in the LPA.

Once committed, an investor must, on receiving a capital call, pay money into the fund up to its commitment. Outstanding commitment is the amount paid in at any given time, less repayments of capital and distributions.

Private equity funds run low cash balances and do not draw down the full commitment at once; the investor can invest the remainder elsewhere, bearing in mind calls may come at short notice. The GP also wants outstanding capital kept low, because the waterfall typically pays the investor an annual hurdle return on outstanding commitment before any carried interest is due to the GP.

The amount of an investor's commitment that, at any particular time, remains available for drawdown.