Capital Commitment

A capital commitment is a legal right stemming from a contract that allows an investment firm to demand money that an investor has agreed to contribute.  For example, when an investor buys into an investment fund, the investor may not have to contribute all of the money that he or she has pledged to give the firm that manages the investment fund.  The fund’s managers in the firm may wait before collecting money from their investors to purchase the fund’s investments, or they may collect money in installments on an as-needed basis.  When the investment fund is ready to purchase investments, the firm will issue a capital call to its investors in order to raise money for the investment fund’s purchases, at which time the investors will need to contribute their promised funds to the firm.