Back to the basics: GP and LP

A client of ours was telling their stakeholders that for a certain property portfolio they were not acting as GPs but as LPs. They entered into the details of what these different roles entailed and we thought to write our latest blog article about the main differences between these two players.

A GP (General Partner) is the main operator of the investment structure. They are the sponsor, the active managers, either local or cross-country partners. They do pretty much everything across the whole lifecycle of the investment, taking a high personal liability for it (often unlimited, sometimes mitigated by creating a limited liability company).

Typical tasks include: sourcing and originating the deals, handling renovations, defining the strategy of the investment, fundraising, underwriting, undertaking due diligence as required, executing, managing portoflios, handling the day-to-day operations, creating value and finally exiting. They are the ones doing the hard work basically, for a management fee (typically 1-2% of the capital invested) and carrying interest, sometimes contributing to a small percentage of the equity and receiving a profit share.

LPs (Limited Partners) are the investors, either accredited (abiding to certain regulators) or not. Simply put, they provide most of the capital (80%+) with a liability limited solely to the money invested and have a fiduciary role with any others investors (typically pension funds, endowments, sovereign funds, high-net-worth individuals and family offices).

Good governance is key for them: although they have no day-to-day management role, they still have to maintain a passive oversight, by reviewing quartely reports for example, to verify transparency in the decision making process and to check that their decisions are well executed and objectives (=returns) are met in order for them to take profits.

If you want to know more about this topic please feel free to be in touch.