What is in a Fund Size?

 

Keith Crouch

Associate Director - Product Management, Burgiss

Private capital funds raise assets through one or more ‘closings’, whereby investors commit capital to be drawn down in the future, mainly at the manager’s discretion as they find appropriate investments. While the majority of capital raised is from external investors, investment managers and their closely affiliated entities also provide commitments during the closings. The amount of capital raised, or fund size, is critically important in a variety of ways. Managers will often announce their successful closings, citing the amount of capital raised. The commitments of some investors must adhere to concentration limits and cannot exceed a certain percentage of a fund’s total size. 

In this paper, we take the view of the investor – the unaffiliated LP. Therefore, both the GP commitment as well as any affiliated LPs are considered to be a combined ‘GP portion’.

Key Takeaways

  • The conventional wisdom that general partners (GPs) commit 1% to funds was never precisely true, especially when one considers commitments from affiliated limited partners (LPs).

  • In reality, funds are raising only 95% of their capital from unaffiliated LPs, and this ratio is trending downwards.

  • The largest funds often see the largest GP commitments but also the most variation.

 

(Unaffiliated) LP Commitment as % of Fund Size

Figure 1: Percentage of capital raised from unaffiliated LPs by vintage year (1995–2019)

Figure 1: Percentage of capital raised from unaffiliated LPs by vintage year (1995–2019)

 
 
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