What does the term "dry powder" in private equity refer to?

The term "dry powder" in private equity specifically refers to committed but unallocated capital. This is money that has been raised by a private equity firm from investors but has not yet been deployed into new investments. The concept is significant because it indicates the firm's capacity to make new investments without needing to raise additional funds.

Having dry powder is crucial for a private equity firm, as it allows them to act quickly on investment opportunities that may arise, helping to secure assets before competition from other investors. The availability of this capital can also enhance a firm's negotiating power, as they can show potential portfolio companies that they have the resources to proceed with a deal.

In contrast, the other options do not capture the essence of what "dry powder" means within the context of private equity. While having cash available for investments might seem related, it does not specifically denote the capital that has been committed but is unspent. Total assets owned by a firm pertain to what they currently possess rather than capital ready for new investments. Finally, equity invested in portfolio companies refers to money that has already been allocated, which runs counter to the definition of dry powder.