Bridger PenningtonFund Launch & Investment Expert

Private Equity Structure

12 Feb 2025 · 1 min

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The speaker explains the typical structure of a private equity (PE) fund, emphasizing that the vast majority of capital flows through this model. Investors, called limited partners (LPs), commit money to a limited partnership, which serves as a pooled fund. The general partner (GP) manages the partnership, drawing capital to acquire, restructure, and eventually exit businesses—often by replacing management, selling to another PE firm, or taking the company public. When portfolio companies generate returns, cash flows back to the limited partnership and is distributed to LPs, while the GP receives a share of the profits (commonly referred to as carried interest), which is the primary source of compensation for fund managers.

Chapters

to talk about private equity fund structure. 99% of all money comes through this structure. Your LPs, you'll kind of hear that terminology, I have my LPs, that they mean investors, put money into the limited partnership. The limited partnership is a pool of money that you as the general partner right here can pull from that pool of money and go make investments. For private equity companies, they're usually buying and selling businesses. And they go buy these companies and depending on the private equity fund and how they want to do it, sometimes they will kick out the management teams and they keep them. And maybe one day they IPO. Maybe one day they sell them to a bigger private equity company. And what happens is when these investments make money down here, the money flows up to the limited partnership, to the limited partners, and the general partner takes a piece of that. And that's how these fund managers make so much money.