General partner (GP).

In plain English

The general partner is the firm or person with control of a limited partnership, responsible for choosing investments, managing them, and deciding when to sell. In exchange the GP is paid an annual management fee and a share of the profits. The trade-off is legal exposure: a general partner has unlimited liability for partnership obligations, which is why the role is usually held by a company rather than an individual. The GP also commits some of its own money to the fund so its interests line up with investors. Investors in the fund are limited partners and do not direct the investments.

01Why it matters

When you invest in a private fund, you are hiring a general partner and handing over control of the decisions, so the quality and incentives of that GP are most of what you are buying.

02The math, step by step

Say a fund raises $100,000,000. Limited partners put in $99,000,000 and the general partner commits $1,000,000 of its own capital, which is 1 percent. The GP charges 2 percent a year, or $2,000,000, and takes 20 percent of profits above the agreed hurdle.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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