Capital Calls and Committed Capital

When an investor joins a private equity or venture fund, it does not write one large check on day one. Instead it signs up for committed capital — a promise to provide up to, say, $50 million over the life of the fund if and when asked. The manager then draws on that promise gradually through capital calls, sending a notice a week or two before each deal closes that says how much cash is needed and by when. An investor that ignores a call is in default, which typically comes with harsh penalties, including forfeiting its existing stake in the fund.

This structure exists because the manager does not know in advance exactly when it will find good deals, and holding a huge cash pile idle for years would drag down returns for investors who could otherwise have that money earning interest elsewhere. Calling capital just in time keeps money working right up until it is deployed.

A fund that has raised $500 million in commitments but called only $180 million so far still shows $500 million in "fund size," but only the $180 million already called (plus any recycled proceeds) is actually at work; the remaining $320 million is unfunded commitment sitting with investors, not the fund.