A clear guide to the GP LP structure behind private equity funds, covering roles, economics, fund lifecycle, and where these funds are typically domiciled. Contact Auvene to learn more and to seek expert advice.

The GP LP Structure Explained, How Private Equity Funds Are Actually Built

Almost every private equity fund is built around the same basic split of labour and capital. Here is what that split actually looks like in practice.

The Basic Split, Who Runs the Fund and Who Funds It

Nearly every private equity fund, and most venture capital and private credit funds alongside them, is built around a structure known simply as GP LP, standing for General Partner and Limited Partner. The General Partner runs the fund. The Limited Partners provide most of the capital. That division sounds simple, and in principle it is, but the details of how each side is compensated, protected, and governed are what actually make a fund work in practice.

The structure itself is usually a limited partnership, a legal entity in which the General Partner takes on full management responsibility and unlimited liability, while the Limited Partners contribute capital in exchange for a share of profits and enjoy limited liability, meaning their financial exposure is generally capped at the amount they committed to the fund.

What the General Partner Actually Does

The General Partner is the active manager behind the fund. It sources deals, conducts due diligence, negotiates and executes investments, manages the resulting portfolio companies, and eventually plans and executes an exit for each holding. Alongside the investing itself, the GP handles investor reporting, fund administration oversight, and day to day decision making, all without needing sign off from Limited Partners on individual transactions, subject to whatever limits the fund’s governing documents set.

To keep its own interests aligned with the fund’s investors, the GP typically commits a portion of its own capital alongside the LPs, often somewhere in the region of one to five percent of total fund size, though this varies by fund and by manager. That commitment is meant to reassure LPs that the GP has genuine skin in the game rather than simply collecting fees regardless of how the fund performs.

How the General Partner Gets Paid

GPs are compensated in two main ways. The first is a management fee, an annual charge, usually calculated as a percentage of committed or invested capital, that covers the GP’s operating costs such as salaries, office expenses, and due diligence spending. The second is carried interest, often just called carry, which is the GP’s share of the fund’s profits once Limited Partners have received their capital back plus an agreed minimum return, known as the hurdle rate.

The industry’s long standing shorthand for this arrangement is the two and twenty model, a two percent annual management fee alongside twenty percent carried interest. That figure has been drifting down in recent years. According to Bain’s 2026 Global Private Equity Report, buyout funds that closed in 2025 charged an average management fee of around 1.61 percent, noticeably below the traditional two percent benchmark. Two forces are usually cited for the shift, a tougher fundraising environment that has pushed managers to offer fee discounts to win commitments, and the growing number of very large funds, where scale allows a lower percentage fee to still generate a substantial dollar amount for the manager.

What Limited Partners Actually Get

Limited Partners are frequently described as silent partners, and that description is largely accurate when it comes to day to day decisions. LPs do not choose individual investments, do not manage portfolio companies, and generally have no direct say in the fund’s daily operations. What they typically get in exchange is capped liability, a share of the fund’s profits after fees and carry, and a set of governance protections negotiated into the fund’s limited partnership agreement.

Common LP investors include pension funds, sovereign wealth funds, endowments, insurance companies, family offices, and high net worth individuals, often investing through an advisor or fund of funds rather than directly. Many funds also form a Limited Partner Advisory Committee, a smaller group of LPs consulted on matters such as conflicts of interest, valuation disputes, or amendments to the fund’s governing documents, giving at least some investors a structured voice without handing over management control.

How the Money Actually Moves

Unlike a mutual fund, where an investor hands over cash upfront, private equity LPs typically commit capital without funding it immediately. Instead, the GP calls capital from LPs as investment opportunities arise, a process known as a capital call or drawdown. When an investment is later sold, proceeds flow back to LPs as distributions, following a defined order known as the distribution waterfall, which usually returns LP capital and a preferred return first, before any carried interest is paid out to the GP.

The Typical Fund Lifecycle

Most private equity funds are built around a ten year life, though extensions are common and built into the fund documents from the outset. That decade is generally split into two phases.

Individual portfolio companies are usually held for somewhere between five and seven years, though this varies considerably depending on strategy, market conditions, and how quickly a particular business reaches an attractive exit point.

Where These Funds Actually Get Set Up

The GP LP structure can technically be formed in many jurisdictions, but a handful of locations dominate in practice. The Cayman Islands exempted limited partnership remains one of the most widely used vehicles globally for private equity and venture capital funds, prized for its tax neutral treatment and its familiarity to institutional investors everywhere. Singapore’s own limited partnership structure, along with the Variable Capital Company for managers who want an umbrella with multiple sub funds, has become an increasingly popular alternative for managers building a base in Asia while still marketing to a global investor base. The choice of jurisdiction affects tax treatment, investor familiarity, and the regulatory obligations the GP and its administrator will need to manage throughout the fund’s life.

Frequently Asked Questions

This article is for general information only and does not constitute legal, tax, or investment advice. Fund terms, fee structures, and jurisdictional requirements vary considerably, and managers should seek advice from Auvene or qualified legal and tax counsel before structuring a fund.