Limited Partner (LP)

Private equity, venture capital and many other investment funds are structured as limited partnerships. The limited partners provide most of the money, while the general partner manages the fund and makes investment decisions.

Limited partners are typically institutional investors, such as pension funds, insurance companies, university endowments, foundations, sovereign wealth funds and family offices, as well as wealthy individuals.

Limited partners commit a certain amount of capital when the fund is set up, but they usually do not hand over all the money at once. Instead, the general partner calls the capital in stages as it finds investments to make. When the fund sells investments, the proceeds are distributed back to the limited partners, after the general partner's share of profits.

For example, a pension fund might commit 50 million to a private equity fund as a limited partner, paying in the money over several years as the fund makes acquisitions.

Limited partners' main protections are the partnership agreement, which sets out fees, profit sharing and their rights, and their ability to choose not to invest in the general partner's future funds.