Unfunded commitment
Capital an investor has promised to a private fund but not yet been asked for. It must be paid on demand, so it matters for liquidity planning even though it appears nowhere in the portfolio's value.
Where you will meet it
Unfunded commitment appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain why planning for liquidity is central when committing money to alternatives
“Private funds draw committed capital over several years through capital calls and return it later as distributions, so the investor holds an unfunded commitment that must be paid on demand.”
- Discuss what to watch when overseeing an alternatives programme after it is in place
“At programme level, track the actual versus target allocation, commitment pacing, unfunded commitments and liquidity, and rebalance through future commitments rather than sales.”
See also
Practise it
Practise unfunded commitment until it is automatic: questions that explain every wrong option.
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