1. Overview

Focus on the organization and functioning of private equity funds through partnerships.

Located within the legal and operational framework of Limited Partnerships (LP).

GPs manage investments; LPs contribute capital, with limited liability.

Key topics: partnership structure, fundraising process, relations among GPs and LPs, profit distribution, restrictions, and investment activities.

2. Core Concepts & Key Elements

Partnership Structure:

General Partners (GPs): manage daily operations, liable for losses, prosecuted if necessary.
Limited Partners (LPs): provide capital, no involvement in daily management, liability limited to contributed capital.

Investment & Payoff Stages:

Investment phase: GPs contribute 1%, LPs 99%.
Payoff phase: LPs get invested capital back first; remaining profits split (e.g., 80%) to LPs, 20% carry for GPs.

Fund Management Principles:

Aggregate returns, payback of LPs, profit split based on carried interest, and variations (hurdle rate, catch-up).

Fundraising Process:

Roadshow to attract investors.
Disbursement schedule: typically 10-30% at closing, rest over 5 years.
Penalties for LPs failing to fund.

Partnership Agreements:

Vesting schedule: early leaving may forfeit profits.
Profit division favors older GPs despite younger GPs’ management role.

Restrictions & Limitations:

Minimum LP investment to limit partners and regulatory complexity.
Fund size constraints: minimum (to avoid adverse selection), maximum (to prevent GP overload).
Activities restrictions: reinvestment, co-investments, GP private funds, outside activities, and adding new GPs.

Activities of GPs:

Investment of personal funds limited.
Sale of interests restricted to maintain incentives.
Investment size in firms limited to ensure diversification and risk control.
Reinvestment and outside activities are restricted during initial years.

3. High-Yield Facts

Partnership Types: GPs manage; LPs supply capital; liability limited to contributed capital.

Typical investment split: GPs (1%), LPs (99%).

Disbursement schedule: 10-30% at closing; remaining over years 2-5.

Profit sharing: Profits split after LPs recover capital; GPs receive carried interest (commonly 20%).

Fund size constraints: minimum to prevent adverse effects; maximum to limit GP overload.

Restrictions: GPs cannot reinvest profits freely, have limits on activities, and are restricted from certain external involvements.

Investment limits: no more than a set percentage in a single firm to diversify risk.

4. Summary Table

Concept	Key Points	Notes
Partnership Types	GPs: manage & liable; LPs: capital, limited liability	Quoted by NVCA Yearbook
Investment split	GPs: 1%; LPs: 99%	Disbursed per schedule
Payoff structure	Capital returned first; profits split (80/20)	Carried interest typically 20%
Fundraising schedule	Disbursement: 10-30% at closing; rest over 3-5 years	Penalties for non-funding
Vesting & profit sharing	Early exit forfeits profits; older GPs get larger share	Based on partnership agreement
Fund size constraints	Min size: avoid adverse selection; max size: prevent GP overload	Geared to balanced fund growth
Restrictions on activities	Reinvestment, outside activities, new GPs limited	To prevent opportunistic behavior
GP activity restrictions	Investment limits, personal funds, sale restrictions	To align incentives and risk control

5. Mini-Schema (ASCII)

Partnership ├─ GPs │ ├─ Manage daily operations │ └─ Liable for losses └─ LPs ├─ Contribute capital └─ Limited liability Funding & Management ├─ Disbursement schedule ├─ Profit split (LPs first, then GP carry) ├─ Partnership agreement (vesting, profit division) └─ Restrictions & limits Activities & Investments ├─ Reinvestment & outside activities restricted ├─ Investment size constraints └─ External involvement limitations

6. Rapid-Review Bullets

GPs manage; LPs invest with limited liability.

Typically, GPs contribute 1%; LPs 99%.

Fund disburses 10-30% at closing; rest over 5 years.

Profits: LPs recover capital first; then split remaining (80/20).

Carried interest: usually 20%.

Fund minimum size to avoid adverse selection; maximum size to limit GP overload.

Reinvestment and outside activities are restricted during initial years.

LPs’ liability limited to contributed capital.

GPs restricted from reinvesting profits freely to prevent opportunism.

Investment per firm limited to diversify portfolio and reduce risk.

Penalties apply if LPs fail to fund disbursements.

Partnership agreement covers vesting, profit sharing, and restrictions.

External activities and new GPs addition are restricted early in the fund.

Sale of GP interests is restricted to maintain incentives.

Fund size limits designed to control adverse selection and management complexity.

Reinvestment restrictions aim to keep GPs aligned with fund interests.

1. 📌 Essentials

Private equity funds operate within Limited Partnerships (LP), with GPs managing and LPs providing capital.
GPs manage daily operations; LPs have liability equal to their contributed capital.
Typical fund investment split: GPs 1%, LPs 99%.
Profits are returned after LPs recover their capital; remaining profits split (commonly80% to LPs, 20% carry for GPs).
Disbursement schedule: 10-30% at closing, the rest over 3-5 years.
Fund size constraints: minimum size to avoid adverse selection; maximum to prevent GP overload.
GPs face restrictions: reinvestment limits, outside activities, and restrictions on external involvements.
Partnership agreements specify vesting, profit sharing, and restrictions.
Reinvestment, outside activities, and addition of new GPs are typically restricted early on.
Penalties apply for LPs failing to fulfill funding commitments.

2. 🧩 Key Structures & Components

General Partners (GPs) — manage day-to-day operations, liable for losses, and responsible for investment decisions.
Limited Partners (LPs) — supply capital, passive investors, liability limited to their contributed amount.
Partnership Agreement — defines profit split, vesting, restrictions, and management rules.
Fund Disbursement Schedule — phased investment over years.
Profit Distribution — prioritized payback of LP capital, then split profits (standard: 80/20, LP/GP).
Fund Size Constraints — minimum (to avoid adverse selection), maximum (to control GP workload).
Restrictions — on reinvestment, external activities, additional GPs, and external investments.
Investment Limits — cap on investment in single firms for diversification.

3. 🔬 Functions, Mechanisms & Relationships

GPs actively manage investments, LPs supply most capital, and both share risks/profits.
Capital flows from LPs to fund, disbursed incrementally per schedule.
GPs select and manage portfolio firms, ensuring diversification within investment limits.
Profits always first reimburse LPs; remaining profits split based on partnership agreement.
Restrictions are enforced to align incentives, prevent opportunism, and control risks.
Partnership agreement governs vesting, profit sharing, and activity limitations.
Carried interest (typical 20%) incentivizes GPs after LPs recover initial capital.
External activities of GPs and external GPs additions are restricted to prevent conflicts of interest.

Partnership
 ├─ GPs
 │   ├─ Manage operations
 │   └─ Liable for losses
 └─ LPs
     ├─ Capital contribution
     └─ Limited liability

Funding & Distributions
 ├─ Disbursement schedule
 ├─ Capital returned first to LPs
 ├─ Surplus profits split (80/20)
 ├─ Carried interest (~20%)
 └─ Restrictions & penalties

4. 📊 Comparative Table

Item	Key Features	Notes / Differences
Partnership Type	GPs manage; LPs contribute capital; liability limited to contribution	Standard for private equity funds
Investment Split	GPs: 1%; LPs: 99%	Disbursed over schedule
Profit Sharing	LPs recover capital first; then split remaining profits (e.g., 80/20)	Carried interest typically 20%
Disbursement Schedule	10-30% at closing; rest over 3-5 years	Phased investments
Fund Size Constraints	Min size: to avoid adverse selection; max size: limit GP overload	Ensures sustainable fund scale
Restrictions	Reinvestment limits, external activities, no new GPs early	Prevent conflicts and opportunism
GP Investment Limits	Investment size per firm limited; restricted from reinvesting profits	Diversification and risk control

5. 🗂️ Hierarchical Diagram (ASCII)

Partnership
 ├─ GPs
 │    ├─ Manage investments
 │    └─ Liable for losses
 └─ LPs
      ├─ Contribute capital
      └─ Limited liability
Funding & Management
 ├─ Disbursement schedule
 ├─ Profit distribution (LPs first, then GP carry)
 ├─ Partnership agreement (vesting, restrictions)
 └─ Operational restrictions (activities, investments)
Activities & Investment Limits
 ├─ Reinvestment & outside activity restrictions
 ├─ Investment size limits
 └─ External involvement restrictions

6. ⚠️ High-Yield Pitfalls & Confusions

Confusing GPs' management role with LPs’ passive investment.
Assuming LPs have unlimited liability—incorrect; liability is limited.
Misunderstanding profit split order—LPs recover capital before profit sharing.
Overlooking disbursement schedule impacting cash flow and returns.
Believing GPs can reinvest profits freely during initial years—restrictions are strict.
Misinterpreting fund size constraints—minimum vs. maximum thresholds.
Ignoring restrictions on external activities and outside investments.
Confusing carried interest (20%) with a fixed fee—it's a share of profits, not fees.
Assuming all partnerships have the same profit split—variations exist.

7. ✅ Final Exam Checklist

Understand the roles and liability of GPs and LPs.
Memorize typical investment splits and profit sharing hierarchy.
Be familiar with the disbursement schedule and its rationale.
Recognize fund size constraints (minimum/maximum).
Know restrictions related to reinvestment, external activities, and new GPs.
Comprehend the purpose of partnership agreements and their key clauses.
Understand how profits are returned and split.
Be aware of carried interest and its typical percentage.
Recognize the structure and purpose of limitations on external involvement.
Grasp how fund management aligns incentives via restrictions and profit splits.
Recall the hierarchy of capital flow, management, and profit distribution.
Be aware of common pitfalls and confusions in terminology and structure.
Know core concepts underpinning private equity partnership structure.
Internalize the importance of fund size constraints and restrictions for operational stability.
Remember penalties for LPs failing to fund disbursements.

This revision sheet serves as a focused, exam-oriented summary of private equity partnership fundamentals, structures, and functions.

Understanding Private Equity Fund Partnerships

Crée tes propres fiches en 30 secondes

1. Overview

2. Core Concepts & Key Elements

3. High-Yield Facts

4. Summary Table

5. Mini-Schema (ASCII)

6. Rapid-Review Bullets

Understanding Private Equity Fund Partnerships

Crée tes propres fiches en 30 secondes

1. 📌 Essentials

2. 🧩 Key Structures & Components

3. 🔬 Functions, Mechanisms & Relationships

4. 📊 Comparative Table

5. 🗂️ Hierarchical Diagram (ASCII)

6. ⚠️ High-Yield Pitfalls & Confusions

7. ✅ Final Exam Checklist

Understanding Private Equity Fund Partnerships

Understanding Private Equity Fund Partnerships

What is the primary role of General Partners (GPs) in private equity funds?

Understanding Private Equity Fund Partnerships

Progression globale

Détail par thème

Introduction au système

Les différents types

Structure axiale

Structure appendiculaire

Suivi de progression par thème