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A typical PE firm is made up of two distinct components: the General Partner (GP) and one or more Limited Partners (LPs). The LPs provide the majority of the capital and the GP manages the day-to-day operations of the PE firm. The GP makes the investments on the behalf of the LPs, and often is advised by an investment committee made up of some of the LPs and even outside directors or advisors in some cases. The GP will charge a management fee to the funds for operating the company and will share in any profits (referred to as carried interest) the funds generate when an investment in a portfolio is sold. Normally the LPs receive their paid-in capital back first, plus a hurdle rate return, with the remainder shared at a pre-determined split between the GP and the LPs.
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