Stack one vintage a year, add calls and distributions across vintages, and find the year the programme pays for itself. Then see what commitment growth does to that year.
A private equity programme becomes self-funding in the first year its distributions cover its capital calls. Committing a flat 100 a year to illustrative funds returning 1.70x, that year is year 8, after a peak cumulative outflow of 303, about three years of commitments; the money is fully back only in year 13. And there is a hard limit: a programme that grows its commitments faster than its funds' IRR, 12.3 per cent here, never self-funds at all.
Worked in full in The Private Markets Limited Partner by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Self-funding is the moment a private markets allocation stops being a claim on the rest of the portfolio's liquidity. Investment committees ask for it when a programme is set up, and it is usually answered with a rule of thumb. It can be computed in one sheet: one row of calls and distributions per fund, stacked by vintage.
| Fund year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Calls | 25 | 25 | 20 | 15 | 5 | ||||||
| Distributions | 5 | 10 | 18 | 25 | 28 | 27 | 20 | 12 | 8 |
Each fund calls 90 and distributes 153: a net multiple of 1.70x and a net IRR of 12.3 per cent. The programme commits 100 at the start of every year.
Programme calls in year t = Σ commitmentv × call %t − v, and the same for distributions.
In Excel, with vintages down the rows and calendar years across, each cell is the vintage's commitment times the profile value at its fund age: =$B5*IFERROR(INDEX(Calls,1,C$4-$A5+1),0). Sum each column, then take distributions minus calls.
| Year | Calls | Distributions | Net | Cumulative | Distributions ÷ calls |
|---|---|---|---|---|---|
| 1 | 25.0 | 0.0 | -25.0 | -25.0 | 0.00 |
| 2 | 50.0 | 0.0 | -50.0 | -75.0 | 0.00 |
| 3 | 70.0 | 5.0 | -65.0 | -140.0 | 0.07 |
| 4 | 85.0 | 15.0 | -70.0 | -210.0 | 0.18 |
| 5 | 90.0 | 33.0 | -57.0 | -267.0 | 0.37 |
| 6 | 90.0 | 58.0 | -32.0 | -299.0 | 0.64 |
| 7 | 90.0 | 86.0 | -4.0 | -303.0 | 0.96 |
| 8 | 90.0 | 113.0 | 23.0 | -280.0 | 1.26 |
| 9 | 90.0 | 133.0 | 43.0 | -237.0 | 1.48 |
| 10 | 90.0 | 145.0 | 55.0 | -182.0 | 1.61 |
| 11 | 90.0 | 153.0 | 63.0 | -119.0 | 1.70 |
From year 11 the flat programme is in steady state: 90 called, 153 distributed, 63 a year released. That 63 is the surplus an LP can redeploy or pay out, and it is what most policy papers mean, loosely, by "mature".
Most programmes do not commit a flat amount. A growing allocation commits more each year, and the newest, largest vintages are all calls. Two inputs change the answer: the growth rate of commitments, and a one-year delay in every distribution.
| Commitment growth | Exits | Self-funding year | Peak outflow | Long-run distributions ÷ calls |
|---|---|---|---|---|
| 0% | Base | 8 | 303.0 | 1.70 |
| 0% | One year late | 9 | 393.0 | 1.70 |
| 5% | Base | 8 | 357.8 | 1.35 |
| 5% | One year late | 10 | 476.8 | 1.29 |
| 10% | Base | 10 | 441.5 | 1.10 |
| 10% | One year late | Never | Unbounded | 0.998 |
| 15% | Base | Never | Unbounded | 0.90 |
The rule: the long-run ratio of distributions to calls is exactly 1.00 when commitments grow at the funds' own IRR. Here that is 12.3 per cent; with exits a year late the IRR falls to 10.0 per cent and so does the threshold. Grow faster than your funds compound and the programme is a permanent net user of cash, however good the funds are.
Why the threshold is the IRR: in a programme growing at rate g, each year's distributions come from vintages that were committed when the budget was smaller by a factor of (1 + g) for every year of age. Discounting a single fund's distributions and calls at g gives the long-run ratio directly, and the discount rate at which they are equal is, by definition, the fund's IRR. The test is therefore quick to run on any pacing plan: compare the planned growth of commitments with the net IRR the plan assumes.
Answering the question with a single fund's J-curve. With flat commitments the programme's net flow in any year equals one fund's cumulative position at the same age, so the single fund turning cash positive in its year 8 does give the self-funding year. It does not give the cash needed to get there, and it stops working the moment the budget grows. The single-fund trough is worked in how to calculate a private equity J-curve; the programme's trough here is three years of commitments deep, and it depends as much on the growth of the commitment budget as on the funds. The second mistake is planning liquidity on the base row: a one-year delay in exits moves the peak outflow by 90 per 100 of annual commitment, which belongs in the reserve sized in what overcommitment ratio a programme can afford.
Stack the vintages, find the first year distributions beat calls, and read the peak outflow as the liquidity the programme borrows from the rest of the portfolio. Flat commitments to 1.70x funds self-fund in year 8 after 303 out; growth above the funds' IRR means never. The Private Markets Limited Partner builds commitment pacing from policy to annual budget, and the free workbook for this case takes your own plan size, target and pacing multiplier.
On illustrative 1.70x funds that call 90 per cent of commitments over five years and distribute over eleven, a programme committing the same amount every year self-funds in year 8. If every distribution arrives a year later, it takes until year 9, and the peak cumulative outflow rises from 303 to 393 per 100 of annual commitment.
Because each year's calls come from larger, newer vintages while its distributions come from smaller, older ones. The long-run ratio of distributions to calls falls as growth rises: 1.70 at zero growth, 1.35 at 5 per cent and 0.90 at 15 per cent. Below 1.00 the programme needs fresh money forever. The threshold equals the funds' own IRR, 12.3 per cent here.
The peak cumulative net outflow. Committing 100 a year to the illustrative funds, net calls accumulate to 303 by year 7, about three years of commitments. Growing commitments 5 per cent a year raises it to 357.8, and slower exits by a year raise the flat programme's figure to 393.
This article is one calculation from The Private Markets Limited Partner. 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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