Hey, everyone! Today, we’re going to dive into a fundamental yet crucial question: How are private equity funds structured?
Let’s break down the structure that produces 99% of all money raised in the world!
First, we have the general partner (GP); this is you, the management.
The GP manages the limited partnership (LP). This is also called the ‘fund.’ The money comes here!
Next, we have the LPs. Limited partners are the investors; they put money into the fund. The LPs are limited as far as liability and what ‘say’ they have in the fund.
You, the GP, manage and put the money where it needs to be.
The LPA and PPM are very intense and expensive legal documents that are vital to the private equity fund.
Before investors can officially invest in the fund, they need to sign the LPA and PPM agreements.
Additionally, these documents outline what the fund can or can’t do.
However, the best part is that you, the GP, get to make the rules of the fund!
When your fund makes money, it will be distributed according to the rules that you have set; some returns to the LPs and some to you.
The SEC has stated that the capital gained through this structure is unlimited; there is no cap! The SEC calls this type of fund Regulation D 506 (B).
In conclusion, this simple structure shows how every million- and billion-dollar private equity fund works!
That’s it for today!
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.