Limited Partner (LP)
Private Equity glossary · Private Equity Fundamentals
Definition
An investor in a PE fund whose liability is capped at its capital commitment and who does not participate in management. Typical institutional LPs: public pension plans (8-15% of total assets in PE), endowments (15-25%), foundations, insurance companies, sovereign wealth funds (e.g., GIC, ADIA, NBIM), family offices, and increasingly individual investors via interval funds and BDCs. LP economics are after management fees, fund expenses, and carried interest — the gross-to-net spread is typically 500-800 bps for a buyout fund (25% gross IRR → 17-20% net).
Limited Partner (LP) in plain English
A private-equity fund is a giant pool of money that a firm uses to buy companies, and a Limited Partner (LP) is one of the outside investors who supplies that money. The word 'limited' means their risk is capped — the most they can lose is what they promised to put in — and they stay hands-off, letting the firm's managers do the actual investing. Think of it like being a silent backer of a food truck: you fund it and share the profits, but you don't cook or drive. Typical LPs are big institutions like pension funds (which invest retirees' money), university endowments, and government sovereign wealth funds. Important catch: the returns LPs actually keep are *after* fees and the managers' profit share, so a fund earning 25% before fees might hand LPs only about 17-20%.
Also called: LP
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