GP commitment
The manager's own money invested in the fund alongside its LPs.
It is usually a low single-digit percentage of the fund, though the right number depends on the manager's wealth and fund size. Some managers contribute it in cash and others through fee waivers.
One percent of fund size used to be the convention, and 2 to 5 percent is now common, especially for larger managers. For a first-time fund, LPs care more that the commitment is meaningful relative to the partners' personal wealth than about the exact percentage.
Managers sometimes fund part of the commitment by waiving management fees in exchange for a larger share of profits, a practice LPs and tax authorities scrutinise. Paying in cash, on the same schedule as LPs, sends the clearest signal of alignment.
Worked example
Two partners raising a $60M Fund I commit $1.2M, 2 percent of the fund. One partner contributes $800,000 from savings and the other $400,000. When the fund calls 20 percent of commitments for its first investments, the GP sends $240,000 alongside the LPs.
Common questions about GP commitment
How much should a GP commit to its own fund?
Commonly 1 to 3 percent of fund size, though LPs judge it against the partners' wealth. A commitment that is a large share of each partner's net worth can matter more than hitting a set percentage.
Can a GP commitment be funded with a loan?
Sometimes, through personal loans or GP financing, but LPs often ask about it. Borrowed money weakens the alignment signal, so disclose the structure honestly if asked.