Dry powder is the amount of committed capital that a fund has available to invest but has not yet deployed. It represents the difference between the total fund size and the capital already drawn down and invested. High levels of industry-wide dry powder signal that significant capital is seeking investment opportunities, which can compress entry multiples and increase competition for assets.
At a fund level, maintaining adequate dry powder is important for following on in existing portfolio companies, capitalising on time-sensitive opportunities, and managing through adverse market conditions. For limited partners, understanding a GP's dry powder position helps assess deployment pace and the likelihood of near-term capital calls.