What is a pacing plan?

A pacing model projects capital calls, distributions and growth in the investor’s existing funds, then works out the new commitments needed to hold the target. Public pension plans typically revisit the plan each year. Investors that commit a steady amount each vintage year are less exposed to the denominator effect.

Say a $10 billion investor wants 10%, or $1 billion, in private equity. Because funds draw capital over several years and return it as they sell, its plan might set commitments of $200 million a year rather than $1 billion at once. Simple example. Terms vary by fund.

Funds call money over years and pay it back over more, so committing too little or too much in any one year leaves an investor under- or over-allocated for a long time.