Updated · Part of the CRE investment glossary
How an unfunded commitment works
In a closed-end fund, each investor signs a commitment at closing and funds it over time through capital calls. Until a dollar is called, it is unfunded: still the investor’s money, but promised to the fund. Added up across every investor, the fund’s unfunded commitments are its dry powder.
Most fund agreements let the GP call capital for new investments only during an investment period, often a few years after the final close. After that, calls are commonly limited to follow-on investments, deals already under contract, fees and partnership expenses. The unused remainder may never be called.
A single-asset syndication is different: investors usually fund their whole subscription at closing, so no unfunded commitment remains.
The formula, and total exposure
The basic formula is on our capital call page. The full version adds recallable distributions:
Unfunded commitment = commitment − contributions to date + recallable distributions
- Contributions to date: every call the investor has funded, including calls for fees and expenses.
- Recallable distributions: amounts the agreement says the GP may call again, often capital returned early in the investment period.
- Total exposure = NAV of the investor’s interest + unfunded commitment — what the investor can still lose or be asked for.
Worked example: calls and a recallable distribution
An investor commits $1,000,000. The GP calls $300,000 in year one and $250,000 in year two. In year three it sells an asset early and returns $100,000 of capital, which the agreement makes recallable. In year four it calls $200,000.
After year four the investor has contributed $750,000 and still owes up to $350,000, so gross contributions could reach $1,100,000 on a $1,000,000 commitment. If the interest’s NAV is $800,000, total exposure is $1,150,000.
| Event | Contributed to date | Recallable added | Unfunded |
|---|---|---|---|
| Closing | $0 | $0 | $1,000,000 |
| Year 1 call: $300,000 | $300,000 | $0 | $700,000 |
| Year 2 call: $250,000 | $550,000 | $0 | $450,000 |
| Year 3 recallable distribution: $100,000 | $550,000 | $100,000 | $550,000 |
| Year 4 call: $200,000 | $750,000 | $100,000 | $350,000 |
Why it matters to LPs and GPs
For an LP, the unfunded commitment is a liquidity obligation. Investors who commit to several funds plan cash so they can meet calls that may arrive together, because missing one triggers the default remedies in the agreement. In many funds the management fee is charged on committed capital during the investment period, so the unfunded part carries fees too: 1.5% on a $1,000,000 commitment is $15,000 a year, whatever has been called.
For a GP, unfunded commitments are capacity. They decide how much the fund can still invest, and subscription credit lines are commonly sized against investors’ uncalled commitments. When an LP sells its interest on the secondary market, the buyer usually takes on the remaining unfunded commitment too.
Common mistakes
Unfunded balances drift when the records do not follow the agreement:
- Treating dry powder as cash in the fund’s bank account; it is still with the investors.
- Leaving out recallable distributions, which understates what investors may owe.
- Forgetting that calls for management fees and expenses also reduce the unfunded amount.
- Counting soft commitments from a raise as signed commitments.
- Reporting the unfunded balance without the calls that are still inside their notice period.
- Sending a call notice with balances that do not tie: commitment, contributed, unfunded.
General information, not legal, tax or investment advice. Your operating agreement, offering documents, counsel and CPA govern your deal.