General Partner
A general partner is the manager of a private equity or venture fund organised as a limited partnership: the entity that raises the fund, makes and manages the investments, is liable for the partnership's obligations, and is paid a management fee and a share of the profits. The limited partners supply the money and the general partner supplies the judgement; the partnership agreement between them is the constitution of the fund.
- Also known as
- GP, Fund manager, Managing partner
- Used at
- every private fund — buy-out, venture, growth, credit, real estate, infrastructure; "the GP" is shorthand for the firm and the people who run it
- Binding
- the limited partnership agreement (LPA) sets the GP's powers, duties, fees, carry, the investment period and restrictions, key-person clauses and the LPs' rights to remove it
- Typical economics
- a management fee of 1.5–2.5% of committed capital during the investment period (falling to a percentage of invested capital after), 20% carried interest, and a GP commitment of 1–5% of the fund from the partners' own money
- Typical duties
- fiduciary — to act in the fund's interest, avoid and disclose conflicts, allocate opportunities fairly across funds, report quarterly and value the portfolio honestly; regulators (the SEC, the FCA, AIFMD in the EU) supervise the larger ones
- Parties
- the GP entity and its partners, the management company that employs the staff, the LPs, and the LP advisory committee that approves conflicts
How a general partner works in practice
A firm's partners form a general partner entity for each fund they raise. The GP raises commitments from limited partners, calls the capital as it invests, sits on portfolio boards, decides when to sell, distributes the proceeds and reports on all of it. It is paid a fee to run the firm — salaries, offices, diligence — and carry to make the partners rich if the fund performs. It also invests its own money alongside the LPs, so that the partners have skin in the game, and the LPs check how much.
The partnership agreement is where the LPs constrain it. Key-person clauses stop the GP investing if named partners leave. Investment restrictions cap concentration and geography. Conflict rules govern fees the GP charges portfolio companies, transactions between its funds, and co-investments for its partners. A no-fault removal clause lets a supermajority of LPs replace the GP. And the LP advisory committee — a few of the largest investors — approves what the agreement does not cover. The GP's reputation with its LPs is its next fund, which is the constraint that actually works.
For a founder or a portfolio company, the GP is the fund: the partner on the board is a member of it, and the fund's decisions — to follow on, to sell, to replace a CEO — are the GP's.
Example
A firm raises a €600m fund. The GP's economics: a 2% fee — €12m a year — during the five-year investment period, funding a team of 25; a €12m GP commitment (2%) from the partners; 20% carry above an 8% hurdle. The fund returns 2.4× over ten years — €1.44bn, €840m of profit — and the carry is about €160m, shared by the six partners by their points, most of it arriving in years six to ten. The management fee over the fund's life totals about €90m. The partners' own €12m returned €29m. When the firm raises its next fund, the LPs' diligence asks who earned the carry, who is staying, and whether the key-person clause names them.
Common mistakes
- LPs committing without reading the key-person and removal clauses, then learning who the fund actually depends on. - A GP commitment too small for the partners to feel the losses. - Fees charged to portfolio companies that the LPA does not disclose, which regulators have pursued. - Founders confusing the partner on the board with the GP's decision; the investment committee decides. - A GP whose carry points concentrate in partners about to retire, and a next fund that inherits the junior team.