February 1, 2017

By the Editorial staff of Commercial Bankruptcy Investor

[Editor’s Note: this article originally appeared on Accredited Investor Markets (AIMkts) ]


DISTRESSED ASSET INVESTORS should always be aware of the alternatives available to them, and also remain abreast of potential competitors, such as private equity.

Private equity firms are serious players in the distressed debt space. With that in mind, here is a brief, 90-second overview of the private equity structure.


private equity, gp, lp and sponsor


Private equity funds have several moving parts. This quick guide will help you learn ‘who’ does ‘what.’

The term “private equity” can seem complicated to the outside world, but the basic structure of a PE investment is actually pretty simple. At their core, private equity funds are a collaboration between sponsors, general partners and limited partners.

Here’s everything you need to know in 90 seconds or less.


The General Partner (GP)

PE firms are operated by a general partner (“GP”), who aggregate investments that they have sourced from limited partners (“LP”s).

Blackstone, KKR and Apollo are examples of GPs.

Remember, they are PE firms; they are not PE funds.

Here’s a quick overview of the process:

  1. A PE firm (the GP) raises money from investors (LPs) for a specific PE fund
  2. The fund is made up of “platforms,” or target companies that the PE firm believes it can create value for.
  3. The GP manages the fund for the benefit of that fund’s LPs

PE firms can manage more than one fund at a timeeach with different LPsalthough it is common for LPs to invest in multiple funds managed by the same PE firm.


The Limited Partner (LP)

So, who can act as a Limited Partner to a PE investment?

In times past, LPs consisted mostly of large institutions (like pension funds, labor unions, insurance companies and universities) and very wealthy families (the sorts of family names that appear each year on the Forbes 400).

In modern times, LPs come from a broad array of entities and people. There are hundreds of thousands of people who, while accredited investors, do not have the massive wealth that was standard in days gone by.

That means more opportunities to participate in a formerly exclusive class of investments. We believe this trend will accelerate.

Click here for more.


The Sponsor

Sponsor (or financial sponsor) is another term for a private equity investment firm. A fund is said to be “sponsored” when it has a managing firm.

The sponsor makes the investments for the fund and performs the requisite diligence. Ultimately, the sponsor is charged with generating additional value through management expertise or navigating private capital markets.


For more information on this topic from the perspective of a potential limited partner, you may also want to check out The Investor’s Guide to Alternative Assets: The JOBS Act, “Accredited” Investing and You.  

Look closer at the relationship between a GP and LP here



Structuring and Planning the M&A Transaction

The Nuts & Bolts of Investing in a PE Fund

Negotiating an M&A Deal

Are You an Accredited Investor and, If You Are, So What?

Advanced Investing Topics

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