{"id":177118,"date":"2022-10-14T12:56:12","date_gmt":"2022-10-14T11:56:12","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=177118"},"modified":"2022-10-19T23:14:10","modified_gmt":"2022-10-19T22:14:10","slug":"what-are-private-equity-general-partners","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/what-are-private-equity-general-partners\/","title":{"rendered":"What Are Private Equity General Partners?"},"content":{"rendered":"

As a business, you may come across private equity funds, for instance, in the course of trying to sell your business. Private equity firms (or ‘PE firms’) specialise in acquiring private \u2014 i.e. companies not publicly traded \u2014 for the purposes of later selling them in the future. Within a private equity fund structure, private equity general partners play an important role This article will explain a general partner\u2019s role in a private equity fund so you can better appreciate how private equity firms work.\u00a0<\/span><\/p>\n

What is a General Partner?<\/span><\/h2>\n

A general partner (or ‘GP’) is in charge of managing a private equity fund. Specifically, they determine which businesses to acquire and how they should be managed. The GP is typically a company composed of professional investors and business managers. In most cases, the GP will also contribute a percentage of the capital used to acquire companies to demonstrate they have a financial commitment to the success of the investment venture.\u00a0<\/span><\/p>\n

Standing opposite GPs are the limited partners (LPs), which are all of the other investors that have contributed capital to funds used to acquire private companies. Limited partners gain their name from the legal structure most PE funds use to structure the investment, namely, <\/span>limited partnerships<\/span><\/a>. In exchange for abstaining from the management of the fund, the LPs obtain the benefit of limited liability. That is, they are only liable to third parties up to the extent of their investment.\u00a0<\/span><\/p>\n

In contrast, <\/span>GPs bear unlimited liability<\/span><\/a>. This means that if a third party sues the fund, they can pursue the GP in their personal capacity.\u00a0<\/span><\/p>\n

LPs tend to be institutional investors like insurance funds and pension funds, as well as high networth individuals.\u00a0<\/span><\/p>\n

\u00a0<\/p>\n

What Do Private Equity General Partners Do?<\/span><\/h2>\n

A general partner is responsible for the day-to-day management of the fund. This includes the following.\u00a0<\/span><\/p>\n

\u00a0<\/p>\n

Building the fund management team\u00a0<\/span><\/h3>\n

The GP will select the group of investment professionals that will identify companies to acquire, sometimes called the investment committee. Where the GP is a private equity firm, as is often the case, the investment committee is often already in place. However, in some cases, a GP may assemble an investment committee from third party private equity houses.\u00a0<\/span><\/p>\n

Likewise, the GP will select the professional that will be involved in the operation of the companies after the fund has acquired them.\u00a0<\/span><\/p>\n

\u00a0<\/p>\n

Coordinating financial and legal advisers<\/span><\/h3>\n

All PE funds require the advice of financial advisers, including investment banks and accountants and legal teams. The GP will source the advisers.\u00a0<\/span><\/p>\n

\u00a0<\/p>\n

Portfolio construction<\/span><\/h3>\n

The GP (through its selected investment committee) will identify which companies it should acquire. Unless it is a term of the investment agreement which companies the fund will acquire, the LPs rarely have any influence over this process.\u00a0<\/span><\/p>\n

When investors refer to PE portfolios, they refer to the fact that most PE funds own more than one company. The portfolio refers to all the companies the PE fund owes.\u00a0<\/span><\/p>\n

\u00a0<\/p>\n

Portfolio management\u00a0<\/span><\/h3>\n

PE funds make a profit by selling their acquired companies for more than what they paid for. Therefore, once the fund has acquired the company, oftentimes, the fund will take an active management position in the company. For instance, the fund may sell off certain assets, authorise the company to borrow money, and close offices to improve profitability. The GP is ultimately responsible for the management.<\/span><\/p>\n

\u00a0<\/p>\n

Disposing of portfolio companies\u00a0<\/span><\/h3>\n

GPs determine when to sell each portfolio company, on what terms, and to which buyer.\u00a0<\/span><\/p>\n

\u00a0<\/p>\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

\n
\n Need legal advice?\n
\n \n Call 0808 196 8584<\/a> for urgent assistance.\n
\n Otherwise, complete this form, and we will contact you within one business day.\n <\/span>\n <\/div>\n\n \n\n
\n