General partner
The manager who raises the fund, makes the investments and carries the legal responsibility.
The general partner decides what the fund buys, manages it day to day and answers to its limited partners. GPs are paid through a management fee and a share of profits called carried interest, and most also invest some of their own money alongside their LPs.
Strictly, the general partner is an entity, usually a limited liability company owned by the investment team, that acts as the fund's general partner and takes on its liabilities. The team itself typically works for a separate management company that receives the management fee, while the GP entity receives the carried interest. People use GP loosely to mean the whole manager.
The GP has fiduciary duties to the fund and its investors. It must manage conflicts, value the portfolio fairly, report regularly and follow the LPA. In return it controls the fund: which companies to back, when to call capital and when to sell. LPs can only remove a GP through the specific rights the LPA gives them.
Worked example
Two partners launch Harbor Ridge Fund I at $80M. They form Harbor Ridge GP LLC as the general partner, which receives 20 percent carry, and Harbor Ridge Management LLC, which employs the team and receives a 2 percent management fee of $1.6M a year. The partners also commit $1.6M of their own money, 2 percent of the fund, through the GP entity.
Common questions about GP
How does a GP make money?
From two sources. The management fee, often around 2 percent a year, pays salaries and costs. Carried interest, often 20 percent of profits after LPs get their capital and preferred return back, rewards performance. Most GP wealth comes from carry, which can take years to arrive.
Is the GP personally liable for the fund's debts?
The general partner entity is liable, but it is almost always a limited liability company, so the individuals behind it are shielded unless they act fraudulently or in breach of their duties. That structure is standard across venture capital and private equity.