What does the term 'commitment' refer to in private equity funds?

The term 'commitment' in private equity funds specifically refers to the agreed amount of capital that an investor promises to provide to the fund. This capital commitment is essential as it serves as a binding obligation for investors, often referred to as limited partners, to supply a predetermined amount of funds to the fund over time.

When investors commit capital to a private equity fund, they do not typically provide the entire amount upfront. Instead, the fund's management will call upon these capital commitments as investment opportunities arise. This structure provides the fund with flexibility to draw down capital when needed, while ensuring that capital is available to finance investments in portfolio companies.

Understanding the concept of commitment is critical because it directly influences the fund's ability to execute its investment strategy and manage cash flows. While other options touch upon aspects of the investment universe, they do not accurately capture the essence of what 'commitment' signifies within the context of private equity funding.