What is commitment pacing in private equity investing?

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AcadiFi · Accepted Answer

Commitment pacing is the practice of scheduling new private equity fund commitments over time so that the limited partner (LP) maintains its target PE allocation while accounting for the J-curve, capital call patterns, and distribution timing. Because PE commitments are called over three to five years and distributions come back over years four to ten or later, an LP cannot simply commit 15 percent of its portfolio at time zero and achieve a 15 percent allocation. Overcommitment is needed, with annual commitments modeled to smooth the invested NAV curve toward target. Example: allocator Siobhan Merriweather-Nguyen at Northbrook Endowment manages a 4 billion dollar endowment targeting 18 percent PE. She runs a pacing model: expected call rate 40 percent year 1, 30 percent year 2, 20 percent year 3, 10 percent year 4. Expected distributions start year 4 at 15 percent of NAV, peaking year 7 at 35 percent. To reach 18 percent allocation by year 6 and maintain it, the model recommends annual commitments of 140 million to 160 million. ```mermaid flowchart LR C[Commit
Yr 1] --> L[Called
3-5 yrs] L --> J[J-curve
decline] J --> D[Distributions
Yr 4-10] D --> N[Net
cashflow] ``` Commitment pacing tools (eFront, Burgiss, Cobalt) stress-test under different market scenarios. Over-commitment ratios commonly run 150 to 200 percent of net allocation to reach target unfunded plus invested exposure. Denominator risk during market drawdowns (where the liquid portfolio falls but PE NAVs are sticky) can push PE over target, a common endowment challenge in 2008 and 2022.

What is commitment pacing in private equity investing?

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