For private equity, what’s the difference between these two?
Not 100% sure I remember, but I’m pretty sure it’s one of these two (and possibly both). 1) Most likely: Private Equity partnerships typically have multi-year commitments of capital. This means that an investor says: This year I’m giving you $5MM, and I’ll give you another $1.2MM each year for the next 4 years. The understanding is that it takes time to find good PE deals and that the PE manager may not be able to apply the full amount immediately. So Invested Capital would be the money that has already come in, and the committed capital, would be the money that hasn’t come in yet, but which the investor has promised to commit later. 2) Possible: Invested capital may be the money that has already been applied in private equity deals, while committed capital is money that the firm has available to apply to future deals.
Yep, option 1 is the way I understand it.
Bchad described it well. You initially commit to a total dollar value that you expect to be invested over time, and this is your committed capital. As the fund managers find investment opportunities, they will issue “capital calls,” where you actually transfer them the cash - so your invested capital is the cash that you have actually transferred to the fund.
Understood. Thanks a lot guys
we should mention here that the manager usually gets paid as a % of the commited capital not the invested capital
florinpop Wrote: ------------------------------------------------------- > we should mention here that the manager usually > gets paid as a % of the commited capital not the > invested capital but of course they do!