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Future liability for capital expenditure in respect of which contract have been made.
ACapital Commitment,Committed Capital or simplyCommitment, is the agreed capital aGeneral Partner can request (ordraw down) from a Limited Partner.
When an investor buys into aPrivate equity fund, the agreement specifies the total amount the investorcommit to the fund. This amount is not requested initially from the Investor, but can bedrawn down on request by theGeneral Partner. When theGeneral Partner decides to invest in a portfolio company, it willcall, ordrawn down some of the commitment.
Over the life of the partnership, the General Partner is not obligated to call the full commitment amount, but cannot call more than what has been committed. If the General Partner does not call the full committed amount, the remainder is called theunfunded commitment.
The commitment amount is part of the Limited Partnership Agreement signed between the Limited Partners and the General Partner. Some clauses of the LPA can refer to the commitment amount, such as:
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