Limited Partner (LP)

LP

Definition A limited partner (LP) is a capital allocator that commits capital to an investment fund managed by a general partner (GP) while remaining passive with respect to day-to-day investment decisions. LPs provide capital and accept exposure to a defined strategy but do not control deal selection, portfolio construction, or operational execution. Although the legal role of an LP is standardized, real-world LP behavior varies significantly based on capital source, governance structure, and mandate constraints. Allocator Context LPs include family offices, pension funds, endowments, foundations, insurance companies, sovereign wealth funds, and funds of funds. Each category evaluates funds through a different decision framework shaped by fiduciary obligations, liability structures, and internal approval processes. In practice, governance structure is a more reliable predictor of LP behavior than stated investment preferences. An LP may express interest in a strategy but still be structurally incapable of committing within a fund’s timeline. Capital Commitment Dynamics LPs commit capital in exchange for exposure to a portfolio-level strategy rather than control over individual investments. Commitment behavior is shaped by: Capital source (proprietary vs. fiduciary) Internal approval hierarchy Portfolio role expectations Rebalancing cadence and liquidity constraints LPs rarely provide explicit reasons for passing on funds. Most rejections are the result of mandate misalignment or timing constraints rather than dissatisfaction with fund quality. Implications for Fund Managers Fundraising efficiency depends on engaging LPs whose governance models allow them to approve allocations within the fund’s target close window. Outreach that ignores internal decision architecture consistently underperforms. Key Takeaways LPs supply capital but do not manage investments Governance structure shapes speed and flexibility Structural fit matters more than persuasion