Limited partner
An investor who commits capital to a fund but does not run it.
Limited partners provide the money in a private fund. They receive a share of profits in proportion to their commitment, and their liability is limited to what they commit. LPs include pensions, endowments, foundations, sovereign wealth funds, insurers, funds of funds, family offices and wealthy individuals.
Legally, an LP is a partner in a limited partnership that has no say in day to day decisions. That passivity is what protects it: an LP that starts directing investments can put its limited liability at risk, which is why LP influence runs through the LPA, the LP advisory committee and side letters rather than through the investment process.
LPs differ far more than the label suggests. A state pension may need months of committee review and a consultant's approval, while a family office can commit in a few weeks. Cheque sizes, minimum fund sizes, sector preferences, emerging manager appetite and reporting needs all vary, so a list of names is not a pipeline until each LP's constraints are known.
Worked example
A $60M seed fund closes with 38 LPs: a fund of funds at $10M, two family offices at $5M each, a foundation at $4M, a corporate investor at $3M and 33 individuals averaging about $1M. If the fund later returns $180M, each LP receives its pro rata share of distributions after fees and carry, and none of them could lose more than the amount they committed.
Common questions about LP
What is the difference between an LP and a GP?
The GP manages the fund, makes investment decisions and carries unlimited liability, usually through a limited company set up for that purpose. The LP provides most of the capital, has no role in running the fund and can lose no more than its commitment.
How much do LPs usually commit to a fund?
It depends on the LP and the fund. Individuals often commit $100,000 to $1M, family offices $1M to $25M, and large pensions or sovereign funds $25M to several hundred million. Many institutions also cap their share of any one fund, often at 10 to 20 percent.