Discussion paper

DP16910 Capital Commitment

Over ten trillion dollars are allocated to private market funds that require outside investors to commit to transferring capital on demand; most of these funds are Private Equity (PE). We show within a novel dynamic portfolio allocation model that ex-ante commitment has large effects on investors’ portfolios and welfare, and we quantify those effects. Investors are under-allocated to PE and are willing to pay a larger premium
to adjust the quantity committed than to eliminate other frictions, like timing uncertainty and limited tradability. Perhaps counter-intuitively, commitment risk premiums increase with secondary market liquidity and they do not disappear even if investments are spread over many funds.


Gourier, E, L Phalippou and M Westerfield (2022), ‘DP16910 Capital Commitment‘, CEPR Discussion Paper No. 16910. CEPR Press, Paris & London. https://cepr.org/publications/dp16910