Glossary · Fund life

What is dry powder?

Dry powder is money that investors have committed to funds but managers have not yet invested. Industry-wide, the total is closely watched.

In practice

Dry powder is usually measured at the fund level from commitments less drawn capital, and then summed across funds. Some counts also net out amounts reserved for fees, follow-on investments or expenses, so totals differ by source. It is often confused with cash held by a fund, which is only the part already called from investors.

An example

Round numbers, not a real fund

Say a fund has $2 billion committed and has invested $1.2 billion of it so far. The other $800 million is still uninvested: that is the fund’s dry powder.

Why it matters

A large pile of it means competition for deals, and pressure on managers to spend before their investment periods end.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.

Related terms

CommitmentA commitment is the total amount an investor legally agrees to provide to a fund, which the manager draws down gradually through capital calls.
Capital callA capital call is a notice asking investors to send part of their commitment, usually a week or two before the money is needed. It is also called a drawdown.
Investment periodThe investment period is the first years of a fund, often about five, when the manager can make new investments. Afterward it mostly manages and sells what it holds.
RecyclingRecycling lets a fund reinvest proceeds from early sales instead of distributing them, so it can invest more than investors committed, usually up to a stated limit.
Subscription lineA subscription line is a short-term loan to a fund, backed by investors’ unfunded commitments, that lets the manager invest before calling investors’ cash.

The terms, in the news each morning.

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