GP vs LP (General Partner vs Limited Partner)

The GP is the private equity firm (and its deal professionals): it raises the fund, sources and screens deals, executes acquisitions, oversees portfolio companies, and decides when to exit. It has unlimited liability for the fund's obligations and full control over decisions. The LPs are passive capital providers — they commit money, fund capital calls, and receive distributions, but they have no day-to-day control (taking control would jeopardize their limited-liability status). The GP brings expertise and judgment; the LPs bring capital. This division is the foundation of the entire PE business model.

LPs typically supply ~98-99% of the fund's capital; the GP contributes a GP commitment of ~1-5% as skin in the game. In return for managing the money, the GP earns a ~2% management fee and ~20% carried interest ("two and twenty"). LPs receive their capital back plus a preferred return before the GP's carry kicks in. So the GP earns disproportionate upside (carry) relative to its small capital contribution, which is the whole point — LPs are paying for the GP's ability to generate returns they couldn't earn themselves.

The terms come from limited partnership law. The general partner has unlimited liability and management authority; limited partners have limited liability (capped at their investment) but must stay passive. If an LP starts directing investment decisions, it can lose its limited-liability shield. In practice, GPs often form the fund's GP entity as an LLC so even the "general partner" caps its liability — but conceptually, the GP is the active, controlling, liable party and the LPs are passive, protected investors. This structure is also why distributions and governance are all spelled out in the Limited Partnership Agreement (LPA).

All the rules governing the GP-LP relationship live in the Limited Partnership Agreement: fee terms, the waterfall, the investment period, key-person provisions, and clawbacks. Large or strategic LPs often negotiate side letters granting them better terms (lower fees, co-investment rights, most-favored-nation clauses). The LPAC (Limited Partner Advisory Committee), made up of major LPs, gives investors a limited oversight role on conflicts and valuations without crossing into management. Understanding that the GP-LP relationship is governed by these documents — not just a handshake — is a sign of real PE literacy.