Asset management and funds
Dry powder
Money investors have committed to funds but that has not yet been invested.
Facts checked against sources onWhat does Dry powder mean?
Dry powder is capital that limited partners have committed to private equity, venture or other private funds but that general partners have not yet invested. It shows how much buying power is waiting on the sidelines. Example: a 1 billion fund that has invested 350 million has 650 million of dry powder. High dry powder across the industry means many buyers chasing deals, which tends to push up prices (valuation multiples), and it puts pressure on GPs to invest before their investment period ends, often around five years.
Where does it come up in case interview prep?
Related terms
- Limited partner (LP)An investor that puts money into a private equity or venture fund.
- General partner (GP)The firm that raises and runs a private equity or venture fund.
- Valuation multipleValue as a multiple of a financial measure, based on similar companies.
- Assets under management (AUM)The total market value of the money a firm manages for clients.
- Net flows (net new money)New client money coming in minus money taken out.
- Active versus passive investingTrying to beat the market versus simply tracking it at low cost.
- Sovereign wealth fund (SWF)A state-owned investment fund, often built from oil revenues or reserves.
- Carried interest (carry)The general partner's share of a fund's profits, usually 20 percent.
Learn it in context
See Dry powder at work in a lesson from Private equity and venture capital, with checks as you go.
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