Definition
Limited Partner (LP)
A limited partner is an investor who commits capital to a fund but does not run it, with liability limited to the amount invested.
LPs are the capital providers in a PE or VC fund — pension funds, endowments, sovereign wealth funds, family offices, insurers and high-net-worth individuals. They commit capital, fund capital calls, and receive distributions, but leave investment decisions to the GP.
In India, funds are typically structured as AIFs with the manager as GP and investors as LP-equivalents (contributors). LPs negotiate terms like management fees, carried interest and the distribution waterfall in the fund's documents.
Related terms
- Alternative Investment Fund (AIF)An Alternative Investment Fund is a SEBI-regulated privately pooled vehicle for sophisticated investors, classified into Category I, II and III with high minimum investment thresholds.
- Carried InterestCarried interest, or carry, is the share of a fund's profits that the general partner keeps as performance pay, typically around 20% and only after investors clear a minimum hurdle return.
- General Partner (GP)A general partner is the fund manager that raises a private fund, makes the investment decisions and earns mainly through carried interest.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.