Limited partnership

Hedge Fund

A hedge fund is usually set up as a limited partnership, with the investors as the limited partners, and the management firm as the general partner.

A hedge fund partnership may be limited to just a prescribed number of investors, who must possess adequate wealth, sufficient liquidity, and an acceptable degree of investment sophistication. 

Private Equity

Like hedge funds, private equity funds are typically structured as limited partnerships where outside investors are limited Partners and the private equity firm, which may manage a number of funds, is the general Partner. Most private equity firms charge both a management fee and an incentive fee. The management fees generally range from 1 to 3 percent, while the incentive fee is typically 20%.

What is unique to private equity is this notion of committed capital.  This is the amount that the LPs have agreed to provide to the private equity fund. The committed capital remains with the LPs until the private equity fund draws from it for investment opportunities that it has identified.   

Before the committed capital is fully drawn down, a process which typically takes 3 to 5 years, the management fee is based on committed capital, not invested capital. 

Also Known As:
Limited partner
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