Lesson 5 of 6 · 13 min
Ownership structures: limited partnerships and beyond
Most alternative funds are limited partnerships, in which a general partner runs the fund with unlimited liability and passive limited partners commit capital with liability capped at their investment, all governed by a limited partnership agreement that side letters can tailor for individual investors.
In short
- Partnerships give flexibility to allocate risk, return and responsibilities between managers and investors.
- General partner (GP): the manager; runs the fund, makes all decisions, has theoretically unlimited liability.
- Limited partners (LPs): outside investors with a fractional interest, a passive role and liability capped at their investment. LPs commit capital; the upfront cash can be a small part of the commitment.
- LPs are usually accredited investors meeting minimum net worth or institutional requirements; funds limit the number of LPs.
- The limited partnership agreement (LPA) sets profit and loss sharing, the GP's duties and restrictions, and rules on transfers, withdrawals and dissolution. A side letter modifies it for specific LPs (e.g. most favoured nation, excusal rights).
- Other structures: PPPs with special purpose entities (infrastructure), master limited partnerships (more liquid, often listed), REITs, commodity funds, ETFs and joint ventures (direct real estate).
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.