Dry Powder

When investors commit money to a private fund, they do not hand it all over at once. The fund manager calls the money gradually, when it finds investments to make, over a period that often lasts several years. The uncalled commitments are known as dry powder.

The term comes from the days of muskets, when soldiers needed to keep their gunpowder dry so it was ready to use.

For example, a private equity fund that raised 1,000,000,000 and has invested 400,000,000 has dry powder of 600,000,000 available for new deals.

Levels of dry powder across the private markets industry are watched closely. High levels of dry powder mean funds have large amounts of money to invest, which can increase competition for deals and push up prices. It can also support markets during downturns, since funds can buy assets at lower prices.

Dry powder must usually be invested within a set period. Pressure to deploy it can sometimes lead managers to make less attractive investments. Global private market dry powder has been measured in trillions of US dollars.