Concentration limit restricts how much of a fund’s committed capital can be deployed into one investment or related basket of investments.

How it works

LPAs often cap single-company exposure—commonly a percentage of commitments or of invested capital—and may add sector or geography limits for diversification. The GP tracks cost basis plus unfunded follow-on reserves against the cap. A hot winner absorbing multiple rounds can bump the limit, forcing syndication, SPV co-invest, or allocation to a parallel fund. Limits interact with dry powder and investment period rules. Credit facilities and subscription lines do not eliminate concentration tests on economic risk. LP advisory committees sometimes approve waivers for exceptional deals.

Why it matters

• Founders: Your lead investor may hit caps and bring co-investors or pass on pro rata despite strong performance. Ask about remaining room early in process.
• Investors (LPs): Concentration limits protect against GP over-conviction blow-ups; they also push GPs toward portfolio breadth.
• GPs: Reserve planning must leave headroom for follow-ons without breaching LPA limits—drives pro rata syndication strategy.

Common mistake

Assuming a fund’s headline size equals available check size for you. Reserves for existing portfolio and concentration limits shrink deployable capital per new name.

Related ideas

Co-investment, follow-on reserve, dry powder, fund size, and diversification policy relate to concentration limits.