Jun 13, 2025
Who are General Partners in Private Equity?
Learn who General Partners in private equity are, their key responsibilities, how they're compensated, and how they differ from Limited Partners.
Private equity is an important part of the global economy—quietly powering acquisitions, mergers, and ownership transitions behind the scenes. You’ve likely seen it in the headlines: a startup is acquired by a larger competitor, a public company is taken private, or two industry leaders merge under the direction of a private equity firm.
But what enables these transactions? More often than not, the answer lies in the structure of a private equity fund. They're typically closed-end vehicles available to institutional investor and often require significant minimum capital commitments.
This guide talks about the core components of private equity fund structures, explores the different components, and explains the roles of key players.
A private equity fund serves as a pooled investment vehicle where multiple investors—known as Limited Partners (LPs)—contribute capital, which is then actively managed by a General Partner (GP). The GP is responsible for sourcing, acquiring, and overseeing ownership stakes in private companies with the goal of delivering strong returns. More than just a financial arrangement, a private equity fund is a structured partnership that defines who controls investment decisions, how profits are shared, and how risks are allocated over the fund’s life.
Private equity funds are most commonly set up as limited partnerships, where roles and responsibilities are clearly divided between two main parties: the general partner (GP) and the limited partners (LPs).
The GP is responsible for managing the fund—making investment decisions, overseeing portfolio companies, and ultimately delivering returns. GPs also assume full liability for the fund’s obligations and typically invest a small portion of their own capital to align interests with LPs.
On the other hand, LPs—which often include institutional investors like pension funds, insurance companies, and endowments—provide the bulk of the capital but take no part in day-to-day operations. Their liability is limited to the capital they commit.
Most private equity firms also operate through a management company, which provides the actual services that support fund operations. While the GP is the legal entity with fiduciary responsibility, the management company houses the investment professionals and executes the fund’s strategy under a contractual arrangement.
Let’s break down the key entities that come together to run a private equity fund:
The general partner (GP) is the fund’s decision-maker. Typically set up as a legal entity (often an LLC), the GP signs the Limited Partnership Agreement (LPA) on behalf of the fund, manages capital deployment, and oversees portfolio companies. GPs usually commit a small portion of capital themselves to show alignment with LPs.
Their compensation comes from two sources:
This “2 and 20” model incentivizes the GP to drive strong fund performance.
The management company is the operational core of the firm. It employs the investment professionals, analysts, legal, finance, and back-office staff who run the day-to-day activities of the fund. While the GP is the legal authority, the management company is the engine that makes it all work.
Management companies receive the management fees and are responsible for costs such as salaries, research, and infrastructure.
The fund itself is a legal vehicle—usually structured as a limited partnership. It is formed to raise and manage a specific pool of capital. The fund is the central investment vehicle in a private equity structure. It’s where limited partners (LPs) commit capital (capital calls), which is then deployed by the general partner (GP) into selected private companies. Most funds are structured as limited partnerships to limit investor liability and enable pass-through taxation, allowing LPs to report gains or losses on their individual returns. Participation is typically restricted to accredited or qualified investors, ensuring regulatory compliance and maintaining the private nature of the fund
This structure has evolved over decades because it provides an optimal balance of control, risk mitigation, and incentives.
The GP shares in the upside (via carried interest) and commits capital alongside LPs, making sure the fund manager has vested interest.
LPs have limited liability—they can’t lose more than their investment. Meanwhile, the GP is fully liable but typically operates through a separate entity to manage that risk.
PE funds are often structured as pass-through entities. This allows income to flow directly to investors without being taxed at the fund level, which is especially attractive to institutional LPs.
By dividing responsibilities among the GP, management company, and fund, each part of the structure focuses on its strengths—investment oversight, operational execution, or legal and financial compliance.
PE funds are long-term vehicles—typically with 10- to 12-year lifespans. Their income structure is twofold: fixed fees and performance incentives.
These are annual fees paid by LPs to the management company to cover fund operations. They’re charged on committed capital in the early years and may switch to net invested capital or NAV as the fund matures.
Carried interest (or “carry”) is where real upside lies for GPs. It's a share of the fund's profits—commonly 20%—earned only after LPs receive back their invested capital.
This performance-based compensation ensures the GP has a strong incentive to generate high returns.
Private equity fund structures are more than legal formalities—they are the blueprint for how capital flows, how value is created, and how stakeholders align around risk and reward. The classic Limited Partnership model remains the gold standard, but fund managers today are increasingly exploring hybrid and innovative approach to match the needs of institutional investors.
As the private equity industry continues to mature and evolve, fund structures will undoubtedly adapt to meet new challenges and opportunities. The fundamental principles of alignment, protection, and efficiency will remain constant, but their implementation will continue to change in response to changing market conditions and stakeholder needs.
A Limited Partnership Agreement (LPA) is a legally binding contract between the general partner(s) and limited partner(s) of a limited partnership fund. It outlines key terms such as the fund’s investment strategy, duration, fee structure, capital commitments, profit distribution (including carried interest), and the rights and obligations of each party.
