What this module covers
A limited partnership agreement is the document that governs a private fund. This module describes the parts of it that decide when money goes in, when it comes back and in what order: the fund's term, capital calls, the distribution waterfall, governance and reporting, and the limits on selling an interest. It also describes the terms that larger investors sometimes negotiate. A worked example follows the waterfall through a hypothetical fund, and a second shows the total cost of a hypothetical fee structure.
The limited partnership
Most private funds are structured as limited partnerships. The general partner (GP) manages the fund: it makes the investment decisions and does the work. The limited partners (LPs) provide the capital. A limited partner's liability is generally limited to the capital it has committed, and it has little say in how the fund is run.
The relationship is governed by the limited partnership agreement (LPA). The LPA is long and written in legal language, and much of it can read as boilerplate. Its key terms are not boilerplate: they set how long the capital is committed, when it is drawn, how profits are divided, what limited partners are told and whether they can leave.