Dry Powder

How dry powder works

Private funds do not hold their investors' money. When an LP signs a subscription agreement, it makes a commitment, a binding promise to send cash when the manager asks for it. The manager then draws that cash down over the life of the fund through capital calls. Everything promised but not yet drawn is dry powder.

The arithmetic is a subtraction, not a model:

Dry powder = total capital commitments − cumulative capital called

PitchBook describes the same quantity from the other direction, as the amount of committed but unallocated capital a firm has on hand, an unspent reserve waiting to be invested. The word reserve is worth treating carefully, because the money is not held in any account the manager controls. That is also why a firm can report a large assets under management figure while holding very little cash: for private funds, adviser-reported AUM includes commitments nobody has drawn.

There are three levels at which people use the term, and they are not interchangeable.

• Fund level. One vehicle, one commitment total, one called total. This is the only version with an exact answer, and the fund administrator produces it every quarter.
• Firm level. All active vehicles from one manager added together, including sidecars and continuation vehicles. Useful for asking whether a manager can still support its existing portfolio.
• Market level. An estimate published by a data provider, summing uncalled commitments across thousands of funds. It is a modeled number, not an audited one, and different providers disagree because they disagree about fund universes, close dates, and what to do with funds past their investment period.

Two adjustments matter and are frequently skipped. First, not all uncalled commitment is investable. Management fees, organizational expenses, and fund expenses are drawn from commitments too, so a fund with a 2 percent annual fee will spend a meaningful share of its commitments on operating the fund rather than buying assets. Second, a manager typically earmarks part of the remaining commitment as reserves for follow-on investments in companies it already owns. Reserves are dry powder, but they are spoken for.

A fund past the end of its investment period is a third special case. Most partnership agreements stop new-platform investing at that point and permit drawdowns only for follow-ons, fees, and expenses, so the headline dry powder figure overstates what can actually chase a new deal.

Worked example

Suppose a 2024-vintage fund closed on 300 million dollars of commitments. These numbers are hypothetical.

By the end of year three the fund has called 165 million dollars: 138 million for investments, 21 million for management fees, and 6 million for fund expenses.

Step one, compute headline dry powder. 300 million minus 165 million equals 135 million dollars uncalled.

Step two, subtract fees still to come. Suppose the agreement charges 2 percent of commitments annually for the five-year investment period and then steps down. Two more years of the investment-period fee is 2 percent of 300 million times two, or 12 million dollars, with a smaller stream after that. Call the remaining lifetime fee and expense load 26 million dollars.

Step three, subtract reserves. The manager holds 70 million dollars against follow-on rounds in its existing eleven positions.

Step four, what is left for new investments. 135 million minus 26 million minus 70 million equals 39 million dollars.

The headline number is 135 million. The number that can fund a new position is 39 million, about 29 percent of it. A founder reading a press release about a manager's remaining capital, and an LP modeling future capital calls, are looking at the same 135 million and should reach different conclusions about it.

Where it shows up

The limited partnership agreement is where the concept is created. The capital contributions article defines the commitment, the drawdown mechanism, the notice period, the investment period, and the permitted uses of capital after that period ends. It also sets out remedies if an LP fails to fund, which is the reason uncalled commitment is treated as reliable capital rather than an intention.

The capital call notice is where the number is reported to investors. ILPA's Capital Call and Distribution Notice Best Practices instructs managers to show, in every notice, the LP-level and fund-level balances both before and after the current transaction, and it names unfunded commitment first among them, alongside cumulative contributions and cumulative distributions. ILPA's point is that every notice should reconcile to every prior notice, so an LP can tie its own record of remaining commitment to the manager's. ILPA released an updated Capital Call and Distribution Template in September 2025, built around fund-level information, LP-level information, a transactions table, and supplemental calculations.

The quarterly report and capital account statement carry the same balance forward, and the figure that appears there is the one an LP uses for its own liquidity planning across its whole program.

Form ADV is where the regulator sees it. In reporting regulatory assets under management for private funds, an adviser includes uncalled capital commitments, which is why adviser-reported AUM and the market value of anything actually owned are different quantities.

Press releases and fundraising decks are where the word is used loosest. There is no standard requiring a manager to say whether a quoted figure is gross of fees or net of reserves.

Common mistakes

• Treating the headline figure as buying power. Fees, expenses, and reserves come out of the same pool.
• Comparing dry powder across managers without normalizing for vintage. A fund that closed last quarter is almost entirely dry powder by construction; that says nothing about the manager.
• Assuming a large market-wide figure means deals will get funded. Uncalled commitment sits inside specific vehicles with specific mandates, stage focus, geography, check size, and investment period end dates. Aggregate capital does not migrate freely to wherever the deals are.
• Confusing dry powder with cash. The money is on the LPs' balance sheets until it is called.
• Ignoring the investment period. Past it, most of what remains can only support existing positions.
• Reading a falling market-level figure as a shortage. It falls when managers deploy quickly as well as when fundraising slows, and the two have opposite implications.

Related terms

Dry powder is the mirror image of an unfunded commitment on the LP side, and it is converted into cash by a capital call. It sits inside a fund governed by a limited partner and general partner relationship, is reduced by the management fee as well as by investments, and is usually compared across a vintage year cohort. Once capital is deployed and returned, performance gets measured with DPI rather than with anything about remaining commitments.

Frequently asked questions

What is dry powder in venture capital and private equity?

It is capital that investors have legally committed to a fund but that the manager has not yet called. The manager can require that money to be sent on short notice, so it counts as available buying power, but it is not sitting in the fund's bank account. The same word is used for one fund, for a whole firm, and for a data provider's estimate of the entire market, and the three are very different in quality.

How is dry powder calculated?

Subtract cumulative capital called from total capital commitments, using the fund's size, or its latest close size for a fund still raising, as the commitment figure. For a more useful number, subtract the fees and expenses the fund will still draw and the reserves the manager holds for follow-on rounds.

Is dry powder the same as cash on hand?

No. It is a claim on investors' cash, not cash held by the fund. Some managers use a subscription credit facility to fund a deal first and call capital afterwards, which changes the timing of drawdowns without changing how much commitment remains.

Does high dry powder mean valuations will rise?

It is one input, not a prediction. Uncalled commitments are locked inside vehicles with defined mandates and defined investment periods, so a large aggregate figure can coexist with a specific stage or sector being starved. Pace of deployment, exit markets, and the supply of fundable companies move prices too.

Why does a manager's AUM look larger than the value of its portfolio?

Because uncalled commitments are included. The Form ADV instructions direct an adviser to determine, for each private fund, the current market or fair value of the fund's assets and the contractual amount of any uncalled commitment under which a person is obligated to make a capital contribution to the fund, and to count both in regulatory assets under management.

What happens to dry powder that is never called?

At the end of the fund's term, most partnership agreements release the remaining commitment, and the LP keeps the money. Investors track this because uncalled capital they have set aside for years earns very little, which is one reason the pace at which a manager calls capital affects the return the LP actually experiences.