An unfunded commitment does not appear on most portfolio reports. It is not an asset, it earns nothing, and a statement showing 20% in private funds is silent about the 10% of the portfolio that has been promised and not yet demanded. That silence is where liquidity crises come from.
Treat unfunded as what it is: a liability of uncertain timing, callable by somebody else, with no right of refusal that does not trigger a default clause. Default provisions in a limited partnership agreement are severe by design, and typically allow forfeiture of a large part of the defaulting partner's interest. So the planning question is whether you can meet the calls, the spending and a market fall at once, rather than whether you can meet a single call.
What three cash demands should you model together?
The three demands to model together, run here on the year-seven book of Worked Example 1 with listed markets down 30% and the private book marked down 8%:
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- Calls. Apply the call rate to the standing unfunded balance, forward, with no new commitments. On that book, a 25% rate on ₹80.03 crore of unfunded means ₹20.01 crore next year and ₹15.01 crore the year after, so ₹35.01 crore over two years.
- Spending. The endowment or family draw, which does not pause because markets fell. At 4.5% of the shocked portfolio, which is ₹358.46 crore of listed assets against a ₹132.73 crore private book, ₹22.10 crore a year.
- Distributions, discounted. Private distributions do not stop in a downturn, they slow. The base case is the model's own mature 25% rate on the marked-down book grown at 12%, worth ₹73.98 crore over two years, and modelling them at half that is a defensible planning assumption that leaves ₹36.99 crore.
Net those and the office needs ₹42.23 crore of liquidity over two years, which is 11.78% of the shocked public sleeve and 8.25% of what the public sleeve was worth before the fall. That is the buffer, and it should be held in something that does not fall 30% at the same time as equities.
What does selling in the secondary market cost?
The alternative to holding it is selling private interests in a secondary market at exactly the moment every other over-allocated investor is doing the same. At a 22% discount to net asset value, raising ₹42.23 crore of cash requires selling ₹54.14 crore of stated value and gives away ₹11.91 crore, which is 8.97% of the private book. That number is the price of not having done this arithmetic in advance.
It is also the single most useful output of the whole exercise, because a committee that has seen it will fund the buffer.