GP/LP Fund Structures and Commitments

Buy a mutual fund and your money goes to work the same day. Commit to a private equity fund and, at the moment you sign, none of your money has actually moved. You've made a promise — a "commitment" — to hand over cash in installments whenever the fund's manager asks for it, over the following several years. This structure, unfamiliar to most public-market investors, is the basic unit of the entire private markets industry.

The two sides

A private fund (private equity, venture capital, private credit, infrastructure) is typically structured as a limited partnership with two very different roles:

Role	Who	What they do	What they're liable for
General Partner (GP)	The investment firm / fund manager	Sources deals, decides when to call and return capital, manages the portfolio companies	Runs the fund; earns fees and a share of profits; personally liable for fund obligations (in practice, via the GP entity)
Limited Partner (LP)	Pension funds, endowments, insurers, family offices, wealthy individuals	Commits capital, has no say in day-to-day investment decisions	Liable only up to the amount committed — hence "limited"

An LP's $10m commitment to a fund is not $10m sitting in an account. It's a legal promise to fund up to $10m in "capital calls" over the fund's life, typically 10-12 years, whenever the GP identifies a deal worth doing.

How the money actually moves

1. Fundraising. The GP raises commitments from LPs, often over a year or more, until the fund reaches its target size — say $500m in total commitments across 40 LPs.
2. Investment period (years 1-5, typically). The GP identifies deals and issues capital calls: "we need $8m of your $10m commitment within 10 business days to close this acquisition." LPs must have cash ready to send on short notice — see Capital Calls, Distributions and the J-Curve.
3. Harvest period (years 4-10). As portfolio companies are sold or taken public, the GP distributes proceeds back to LPs, after taking its share.
4. Wind-down. Remaining assets are sold and the fund is closed, usually with the option of a short extension if a few assets haven't yet found a buyer.

An LP who commits $10m might send out $1m in year 1, $4m across years 2-3, and never actually reach the full $10m if the GP finds fewer good deals than expected — but the LP must be ready to fund the full amount at any time it's called.

Why this structure exists

Calling capital only when there's a specific deal to fund, rather than upfront, avoids the GP sitting on a large pile of un-invested cash earning close to nothing while it searches for opportunities — a drag that would show up directly in the fund's returns. It also lets a single LP commit to many funds without needing the full sum of every commitment in cash simultaneously, since calls across a diversified program of funds arrive on different, overlapping schedules. The tradeoff is complexity: the GP earns fees on committed or invested capital (see Management Fees, Carried Interest and Hurdle Rates), and LPs must forecast and manage a cash-flow stream they don't fully control — see Commitment Pacing and the Denominator Effect for what happens when that forecast breaks.