Capital Under Management (CUM) refers to the total amount of capital that a private equity firm oversees across all its active funds. It includes both committed capital from limited partners (LPs) and invested capital that has been deployed into portfolio companies.
CUM is a key metric used to assess a private equity firm’s scale, fundraising success, and ability to manage investments effectively.
Key Components of Capital Under Management
- Committed Capital – The total amount pledged by LPs across all active funds, whether or not it has been drawn down. This represents the total financial obligation LPs have agreed to provide over time.
- Invested Capital – The portion of committed capital that has been deployed into portfolio companies through acquisitions, growth financing, or other investments.
- Unfunded Commitments – The portion of committed capital that has not yet been drawn down by the fund but remains available for future investments, follow-on capital, or expenses.
- Recycled Capital – Some funds reinvest proceeds from exits or portfolio company cash flows into new opportunities, increasing the total capital under management.
Formula
Capital Under Management (CUM) = Committed Capital + Reinvested Capital – Capital Returned to LPs
For example, if a private equity firm has raised $5 billion in commitments across multiple funds, has invested $3 billion, and has returned $1 billion to LPs while reinvesting $500 million, its CUM would be:
CUM = $5 billion + $500 million – $1 billion = $4.5 billion
Example in Private Equity
A private equity firm manages three funds:
- Fund I: $1 billion (fully invested, with $500 million returned to LPs)
- Fund II: $2 billion (75% invested, $500 million available for future investments)
- Fund III: $3 billion (actively fundraising, with $1 billion committed so far)
In this case, the firm’s total Capital Under Management would include all committed capital from Fund III, plus the invested and available capital from Fund II, and any capital still managed within Fund I.
Key Considerations in Private Equity
- Fundraising Success – A higher CUM signals strong investor confidence and the firm’s ability to raise large funds.
- Deployment Strategy – Firms must balance committed and invested capital to ensure timely deployment and avoid excessive capital overhang.
- Performance Benchmarking – Investors use CUM alongside metrics like Assets Under Management (AUM) and internal rate of return (IRR) to evaluate fund performance.
- Investor Relations – LPs monitor how effectively a firm deploys and manages its capital, influencing future commitments.
Importance in Private Equity
Capital Under Management is a critical measure of a private equity firm’s scale and investment capacity. It reflects the firm’s ability to attract capital, execute deals, and manage portfolios, ultimately influencing its reputation and competitiveness in the market.
