How much should a GP commit to their own fund?

Terms and alignment
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Ask about the amount, the source and the timing together. The GP commitment is the capital the manager commits to the fund alongside investors. Cooley's practitioner commentary describes a typical range of one to two percent of fund commitments. That is an observation from one source, not a requirement, and the same percentage can mean very different things for a manager with substantial personal wealth and one investing most of what they have.

How the commitment works

  • It is made by the general partner entity, not by an individual, and appears in the fund documents like any other commitment.
  • The partners, or related persons, usually fund the general partner so it can make its commitment.
  • It is drawn over time alongside investor capital, not paid at the first close.
  • The share each partner funds need not match their share of the carry. Cooley gives the example of a partner with 20 percent of the carry funding 10 percent of the commitment.
  • It is usually exempt from management fee and carry, so the manager participates on the same economic footing as investors.

Cash or fee waiver

The commitment can be met in cash, by waiving some management fee entitlement, or by a mix. These are different. A cash commitment is real exposure to the fund's results. A fee waiver is income the manager gives up. Both are real, but they should be described accurately rather than combined into one headline percentage. Ask which it is.

What you are actually weighing

The commitment is the clearest structural expression of alignment a manager has, which is why ILPA's Principles treat alignment of interest as one of the foundations of an effective partnership. But the size that signals alignment depends on the person. One percent from a manager whose net worth is mostly in the firm can represent more commitment than three percent from a manager for whom it is a small allocation. It is reasonable to ask, tactfully, what the commitment represents for the partners.

Questions to ask the manager

  • How much is the GP commitment, and how is it split among the partners?
  • Is it cash, a fee waiver or a mix?
  • Where does the capital come from, and when can it be funded?
  • How does each partner's share of the commitment compare with their share of the carry?

What a commitment does not show

A larger commitment shows exposure. It does not show judgment, operational strength or strategy fit. A manager stretching personally to meet a high commitment can also face pressure that affects decisions. Read the commitment as one alignment signal among several, alongside the economics, the governance terms and how the manager runs the firm.

Related questions

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