General Partner (GP)

The general partner (GP) is the personally liable partner of a fund structured as a partnership. In private equity and venture capital, GP is also commonly used to describe the manager side, which selects investments, oversees holdings and prepares exits. Limited partners provide the committed capital. In German fund structures, a GmbH commonly acts as general partner, placing unlimited liability at the level of that entity. Investment management is frequently undertaken by a separate management company subject to the applicable regulatory requirements.

Compensation on the manager side includes a management fee, classically around two percent of committed capital per year, and carried interest often set at 20 percent. In many private equity funds, carry is paid only once investors have received an agreed preferred return, often eight percent. The precise terms and recipients of the compensation are defined in the fund agreements. After the investment period, the management fee base commonly switches to remaining invested capital, reducing the fee.

The manager side normally invests its own money in the fund as well, often in the range of one to five percent of fund size. This commitment is intended to align interests with investors. These are guide values only, as actual terms vary by fund and market environment. Besides investing, fund management responsibilities include valuing holdings, reporting to investors, complying with investment limits and involving the investor advisory committee in conflicts of interest. The allocation of these duties between the general partner and the management company depends on the structure.

Fund life is typically ten years with extension options, of which roughly five years form the investment period. For investors, assessing the team is particularly important because performance over that period depends on its composition and stability. The allocation of carried interest within the team, provisions for the departure of key people and succession planning within the management company are therefore examined. Key person clauses commonly allow the investment period to be suspended when specified individuals cease to be involved.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.