Limited partner (LP)

An investor in a private fund structured as a limited partnership, who commits capital, has limited liability and generally has little control over investment decisions.

Example

A pension fund committing 20,000,000 to a venture fund.

Important

An LP's influence is mostly exercised when choosing the manager and negotiating the agreement.

Related terms

  • General partner (GP) — The manager of a private fund structured as a limited partnership, responsible for investment decisions and usually paid through fees and carried interest.
  • Committed capital — The total amount an investor has contractually agreed to provide to a fund, whether or not it has yet been called.
  • Capital call — A demand from a fund manager for part of the money an investor has committed, made at a time of the manager's choosing.

Lessons that explain it

  • A venture fund needs a few companies to return the whole fund — Venture capital firms invest other people's money in young companies, and their fund structure makes them look for rare, very large outcomes rather than steady good ones. (10 min)
  • LPs provide the money; GPs make the decisions — Most private funds are partnerships between limited partners, who commit capital and have limited liability and control, and a general partner, who manages the fund and earns fees and carried interest. (9 min)
  • Pensions, endowments and family offices invest on different clocks — Institutional investors and family offices manage large pools of capital with specific obligations and time horizons, which determine what they buy, how long they hold and how they behave in a crisis. (10 min)
  • Knowing what each investor needs back tells you how they will behave — Every investor type has a different definition of a good outcome. Mapping those needs explains most disagreements on a cap table before they happen. (10 min)

All 578 terms in the Investing glossary