The "size" of a private equity fund is based on the total amount of money all investors commit to invest in the fund - known as "committed capital." Because a private equity fund invests capital over time, the fund does not need all of the investors' money at the inception of the fund, and so the fund "calls" capital over time. Private equity funds typically have initial terms of 10 years, but most of the new investing occurs during the first several years (usually 3-5 years) of the fund, known as the "investment period." As a result, the fund calls the bulk of capital from the investors during this investment period.
Let's use an example.
Example: ABC Fund, L.P. obtains $100 million in commitments from investors - $98 million from outside investors (limited partners or LPs) and $2 million from the general partner (the GP). The "size" of ABC Fund L.P. is $100 million, and private equity pros say that ABC Fund, L.P. has $100 million in "committed capital." On day 1, ABC Fund, L.P. decides that it needs $5 million to make an investment and to pay certain fees and expenses of the fund. The GP will send a "capital call notice" to each investor stating the amount of money that investor must contribute to the fund (the LP's share of the $5 million that it must pay), and when the payment is due. After all investors have met the capital call, the fund is said to have $5 million in "called capital," (also known as "drawn capital" or "paid-in capital") and $95 million in "uncalled capital" (which is capital that the fund can call in the future).
Let's put this in mathematical terms:
- Committed Capital = fund size = sum of all commitments made by investors (LPs and GP).
- Called Capital = total amount of capital called by the GP and paid in to the fund by investors. This is also known as "drawn capital" or "paid-in capital."
- Uncalled Capital = total amount of capital that is available to be called by the GP.
- Called capital + Uncalled Capital = Committed Capital.
Link to prior post on US Private Equity Fund Structure - The Limited Partnership: