What is the typical structure of a private equity fund?

The typical structure of a private equity fund is a limited partnership structure. This framework is advantageous for both the general partners (GPs), who manage the fund, and the limited partners (LPs), who provide the capital but do not partake in the day-to-day management of the fund.

In this arrangement, the general partners take on the responsibility of making investment decisions, managing the fund's assets, and assuming the liability associated with those decisions. Conversely, limited partners enjoy a limited liability, meaning their potential losses are confined to their investment in the fund, protecting their personal assets beyond that investment.

This structure allows for more efficient management and investment flexibility, which is essential for private equity funds that require substantial investments and active management to enhance the value of portfolio companies. The limited partnership structure is commonly used across the private equity industry, creating a clear distinction between the roles and responsibilities of the investors and the managers.

Other structures, such as sole proprietorships, corporations, or cooperatives, do not provide the same combination of liability protection, tax efficiency, and alignment of interests between investors and managers, making them less suitable for the private equity context.