Limited Partner (LP)
A limited partner (LP) is an investor in a fund who provides capital but does not manage day-to-day investment decisions.
Allocator relevance: LPs are the capital providers—LP constraints, governance rights, and reporting needs shape fund terms and manager selection.
Expanded Definition
LPs include institutions (pensions, endowments, foundations), family offices, and other allocators. LPs commit capital, respond to capital calls, receive distributions, and rely on reporting to monitor performance. While LPs typically don’t control investment decisions, they can influence governance through LPAC participation, side letters, and voting provisions in fund documents.
For manager evaluation, “LP quality” can also matter: investor base stability and alignment can affect fundraising dynamics and long-term platform health.
How It Works in Practice
LPs sign subscription documents, commit an amount, and fund capital calls during the investment period. They receive quarterly reports, audited financials, and distributions per the waterfall.
Decision Authority and Governance
LP rights and protections are defined in the LPA and side letters. LPACs provide a structured governance channel for conflicts and approvals (e.g., key person events).
Common Misconceptions
- LPs have no influence (they can through governance mechanisms).
- All LPs receive identical terms.
- LP = passive (LPs can be active in monitoring and governance).
Key Takeaways
- LPs provide capital and rely on governance + reporting for protection.
- LP rights vary and should be diligence-reviewed.
- LP constraints often determine fit as much as strategy does.