Glossary · Fund economics

What is a GP commitment?

The GP commitment is the money a manager and its partners invest in their own fund alongside investors, often a few percent of the fund’s total.

In practice

The commitment is set out in the LPA and is drawn through capital calls pro rata with other investors. It is often funded partly by waiving management fees rather than paying cash, which some investors accept and others resist. It is separate from carried interest, which is a share of profits and requires no capital.

An example

Round numbers, not a real fund

Say a $1 billion fund has a 2% GP commitment. The manager and its partners put in $20 million of their own money next to their investors’.

Why it matters

Investors read it as skin in the game, and a low or all-borrowed commitment can raise questions.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.

Related terms

LPAThe limited partnership agreement, or LPA, is a private fund’s main contract. It sets the fees, carry, investment limits and the rights of the manager and the investors.
Carried interestCarried interest is the share of a fund’s profits, typically 20%, that the manager earns after investors get their money back and clear the preferred return.
Management feeThe management fee is the annual charge investors pay a manager to run a fund, often 1% to 2% of committed capital during the investment period.
Key personA key person clause lets investors pause new investments, or sometimes end the fund’s investing, if named senior people leave or stop giving the fund enough of their time.
Capital callA capital call is a notice asking investors to send part of their commitment, usually a week or two before the money is needed. It is also called a drawdown.

The terms, in the news each morning.

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