Capital Commitment
Private Equity glossary · Private Equity Fundamentals
Definition
An LP's legally binding promise to contribute up to a specified amount of capital when called by the GP. The sum of all LP commitments plus the GP commitment equals the fund's committed capital (fund size). Capital is not funded at commitment — the GP issues capital calls (drawdowns) as needed, typically with 10 business days' notice. LPs failing to fund a call are in default and may suffer forfeiture (often 50% of interest), dilution, or forced sale of the interest at a discount. Default is extremely rare among institutional LPs.
Capital Commitment in plain English
A capital commitment is the legally binding promise an investor makes to put in up to a certain amount whenever the fund's managers ask for it — say, promising up to $10 million over the fund's life. Add up everyone's promises and you get the fund's total size, even though almost none of that cash has actually moved yet. It's like signing a pledge to chip in for a group trip: the money stays in your account until the organizer says it's time to pay, but backing out isn't really an option. If an investor refuses to pay when called, they're in 'default' and can be punished harshly — losing up to half their stake — which is why serious institutions basically never do it.
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