Commitment pacing turns an allocation into an annual commitment, and shows why committing the target once never reaches it.
Divide the target net asset value by the number of NAV-years one dollar of commitment produces over a fund's life. For a $400m family portfolio aiming at 20 per cent in private equity, an $80m target, and an illustrative fund that produces 5.30 NAV-years per dollar committed, the answer is $15.1m a year, or 3.8 per cent of the portfolio, every year, and the target is reached only in year nine.
Worked in full in The Family Office Professional by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The allocation a family office chooses is a share of net asset value. The decision it actually controls is a commitment, which turns into NAV slowly, partially and temporarily: capital is called over several years, grows, and is handed back before the last of it has been drawn. The link between the two is one number, and pacing is the arithmetic of finding it.
| Fund year | Called | Distributed | NAV per $1 committed |
|---|---|---|---|
| 1 | 25% | 0% | 0.25 |
| 2 | 25% | 0% | 0.53 |
| 3 | 20% | 0% | 0.78 |
| 4 | 15% | 10% | 0.92 |
| 5 | 10% | 20% | 0.91 |
| 6 | 0% | 25% | 0.75 |
| 7 | 0% | 30% | 0.58 |
| 8 | 0% | 40% | 0.38 |
| 9 | 0% | 50% | 0.21 |
| 10 | 0% | 100% | 0.00 |
| Sum of NAV, the NAV-years | 95% | 5.30 |
NAV grows 10 per cent a year. The fund calls 95 cents of every dollar, returns $1.48 and so makes 1.56 times the capital called. Its NAV never exceeds 92 cents per dollar committed, and it holds that much for only a year.
Suppose the family commits the same amount C every year. Once ten vintages are running, one fund is at each age, so the private equity NAV is C times the sum of the profile. Set that equal to the target and solve:
Annual commitment = target NAV ÷ NAV-years per $1 committed
$400m × 20% = $80m target; $80m ÷ 5.30 = $15.1m a year
In Excel: =Portfolio*Target/SUM(NAV_profile), with the profile built row by row as =prior*(1+g)*(1-dist)+call
Committing 19 cents for every dollar of target NAV feels timid. It is not: each vintage holds its peak only briefly, and ten vintages overlap to fill the allocation between them.
| Year | PE NAV, $m | Share of portfolio |
|---|---|---|
| 1 | 3.8 | 0.9% |
| 3 | 23.4 | 5.9% |
| 5 | 51.0 | 12.8% |
| 7 | 71.1 | 17.8% |
| 8 | 76.8 | 19.2% |
| 9 | 80.0 | 20.0% |
Halfway through the decade the family has 12.8 per cent, not 20. That is the honest shape of a steady programme, and the reason families front-load. Front-loading works, but every extra dollar committed early is still in the ground when the steady-state vintages arrive, which is how allocations overshoot.
At steady state the programme pays for itself. Calls run at $14.3m a year; the $80m of NAV grows $8.0m; distributions are $22.3m. The family receives $8.0m a year net, the growth on the allocation, which is why a mature programme needs a commitment budget rather than a cash budget.
| Case | Fund multiple | NAV-years | Commitment, $m | % of portfolio |
|---|---|---|---|---|
| NAV growth 6% | 1.31 | 4.83 | 16.6 | 4.1% |
| NAV growth 10% | 1.56 | 5.30 | 15.1 | 3.8% |
| NAV growth 14% | 1.86 | 5.83 | 13.7 | 3.4% |
| Growth 10%, exits a year later | 1.68 | 6.43 | 12.4 | 3.1% |
Two lessons sit in this table. Better funds need smaller commitments for the same allocation, so a pacing plan built on a cautious return assumption overshoots if the funds do well. And slower exits matter more than lower returns: a one-year delay in distributions cuts the required commitment from $15.1m to $12.4m. A family that keeps committing $15.1m when exits slow will find itself well above 20 per cent without having changed anything.
The other route to overshooting needs no change in the funds at all. If the $320m outside private equity falls 25 per cent to $240m, the unchanged $80m becomes 25.0 per cent of the portfolio. Private NAV is marked late and moves less, so the denominator does the work.
The portfolio itself does not stand still. If the family's wealth grows, the $80m target grows with it, and a commitment fixed at $15.1m slowly falls behind. The cleaner rule is to set the commitment as a share of current portfolio value, 3.8 per cent on these assumptions, and to re-solve that share each year from the funds' actual calls and distributions rather than from the profile assumed at the start. Pacing is a forecast that has to be corrected, not a schedule that can be signed once.
The common mistake is to commit the target. A family wanting $80m of private equity commits $80m, once. The NAV of that single vintage peaks at $73.6m, 18.4 per cent of the portfolio, in its fourth year, and by year eight has fallen to $30.5m. The family never reaches its allocation, and believes it has.
The test for any pacing plan: multiply the annual commitment by the NAV-years of the fund profile you believe. If the product is not the target NAV, the plan is aiming at something else.
A private equity allocation is a flow, not a purchase. Pace it as target NAV divided by NAV-years, expect nine years to reach it at a steady pace, and re-solve every year with the portfolio's actual value and the funds' actual exits. The free companion workbooks for the book take a version of this, the allocation nobody chose, with a market fall, and the reason a portfolio of funds cannot be summarised by averaging their returns is set out in a related article.
A commitment pacing model converts a target private equity allocation, a share of NAV, into the commitments needed each year. It projects calls, growth and distributions for one dollar committed, sums the NAV over the fund's life, and divides the target by that sum. With 5.30 NAV-years per dollar, an $80m target needs $15.1m committed every year.
At a steady annual commitment, roughly as long as one fund's full life. On an illustrative profile, committing $15.1m a year reaches 12.8 per cent of a $400m portfolio by year five and the full 20 per cent only in year nine. Front-loading is faster but tends to overshoot later.
Either the denominator falls or the funds return capital slowly. If $320m of public assets drops 25 per cent to $240m, an unchanged $80m of private equity becomes 25.0 per cent of the portfolio. And a one-year delay in exits cuts the commitment needed from $15.1m to $12.4m, so a family that keeps committing $15.1m drifts above target.
This article is one calculation from The Family Office Professional. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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