In this episode, we break down the key differences between Limited Partners (LPs) and General Partners (GPs)—two essential roles in private equity, venture capital, and real estate syndications.
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Learn how to launch your own private fund or real estate syndication with Fund Playbook. In each episode, Jimmy Atkinson shares insights on syndicating deals, raising capital, and entrepreneurship.
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Episode Summary
In this episode of Fund Playbook, Jimmy Atkinson delivers a clear, practical breakdown of the differences between Limited Partners (LPs) and General Partners (GPs) in the world of private equity and real estate syndication. Whether you’re raising capital, considering a fund launch, or thinking about passively investing in one, understanding the roles, responsibilities, and rewards of each side is essential. Jimmy explains how the LP–GP relationship is structured, how compensation flows, and which role might be the right fit for you.
What Is a GP?
Jimmy begins by defining the General Partner as the active manager of a private fund. The GP is responsible for:
- Developing the investment thesis
- Structuring the deal and setting up the fund
- Raising capital from LPs
- Managing the underlying assets
- Handling investor communications
- Fulfilling fiduciary duties to investors
In return for these responsibilities, GPs typically receive:
- An annual management fee (usually 1–2%)
- A carried interest split (usually 20%) on profits above a preferred return (often 6–10%)
GPs enjoy control and upside potential, but also take on personal liability, capital at risk, and significant opportunity cost. In some fund structures, GPs may also need to personally guarantee loans or contribute a meaningful amount of upfront capital.
What Is an LP?
Limited Partners are passive investors who contribute capital to the fund but do not participate in day-to-day operations or decision-making. Their responsibilities are minimal:
- Review the PPM and legal docs
- Fund their capital commitment
- Receive periodic reports and distributions
The advantages of being an LP include:
- Access to private markets and alternative assets
- No operational burden
- Potential for non-correlated returns and real estate exposure without property management
Risks include:
- Capital loss if a deal goes south
- Illiquidity, as most private funds lock up capital for multiple years
- Lack of control, especially in blind-pool or discretionary funds
Jimmy emphasizes that LPs are essentially betting on the GP’s skill and integrity.
Visualizing the Fund Structure
Jimmy walks through a typical GP–LP fund structure using a whiteboard diagram. The fund is positioned as a limited partnership or LLC that owns multiple underlying assets (real estate or operating companies). Above the fund are two classes of stakeholders:
- GP Entity: Controls the fund, commits some capital, and earns fees + carry
- LPs: Contribute the bulk of the capital and earn returns according to the fund’s economic structure
How the Waterfall Works
Jimmy breaks down an sample fund’s capital stack and typical economic terms:
- Preferred Return: LPs receive a defined return first—often 8% annually
- Return of Capital: LPs then receive 100% of their invested capital back
- Profit Split (Carry): Once the above hurdles are met, profits are split:
- 80% to LPs
- 20% to the GP
Jimmy notes that waterfall structures can vary:
- Some are flat (e.g., 80/20 above 8%)
- Others are tiered (e.g., 80/20 above 8%, then 70/30 above 12%, and so on)
- Terms should be clearly disclosed in the PPM and operating agreement
The more LP-friendly the structure, the easier it may be to raise capital.
Real-World Example: $10M Fund
Jimmy models a sample real estate fund with:
- $10 million total capitalization
- $1 million from the GP
- $9 million from three LPs contributing different amounts
He shows how an 8% pref is distributed according to ownership percentages. Once the hurdle is cleared and capital is returned, the GP begins earning its 20% carried interest. The LPs continue to share the remaining 80% according to their ownership share.
This example illustrates how the GP’s economics can scale—participating in outsized upside without contributing the majority of capital.
Should You Be an LP or GP?
Jimmy closes the episode by helping listeners decide which role suits them best.
You might be an LP if:
- You’re a high-income professional
- You have investable capital but want a passive role
- You want diversification into real estate or private markets
- You’re comfortable with illiquidity
You might be a GP if:
- You’re an operator, developer, or fund manager
- You enjoy structuring deals and raising capital
- You have sector expertise or access to deals
- You want control and are willing to accept higher risk and time commitment
Jimmy also teases future episodes on hybrid structures—such as co-GP deals or fund-of-funds models—that blend the responsibilities and economics of both roles.
Closing Thoughts
Whether you’re building a fund or investing in one, understanding the LP–GP structure is foundational. Jimmy encourages listeners to evaluate their own goals, strengths, and risk tolerance to determine where they fit best. He invites viewers to leave a comment: “Are you an LP or a GP?”