subject: Lp & Gp In Private Equity Fund [print this page] 2010 International LP & GP Summit (Shanghai) was held in Shanghai International Convention Center by China Venture Capital Research Institute Limited and Antai College of Economic & Management Shanghai Jiao Tong University from 14th-16th January, 2010. Its theme is LP in China: Situation and Development, Opportunity and Challenge. LP, that is Limited Partner, usually serves as fund investor in fund operation. GP, that is General Partner, commonly serves as fund manager in fund operation. LP realizes the appreciation and exit of investment capital by GP managing investment fund. Effective communication and cooperation between LP and GP are the magnitude guarantee of realizing the continuous investment capital appreciation.
After the global financial crisis, Chinas economy still maintains rapid growth, and the growth is in the front ranks of the world. But in the first half of 2010, Chinese stock market slumped. Under the Property policy and the policy against inflation enacted by Chinese government, Blue Chips greatly decrease. Now, how to grasp the future direction of Chinese investment market accurately and how to realize the continuous appreciation of the capital have become the major focus issue of Private Equity investors. Strengthening the communication and cooperation between LP and GP shall better help foreign investor to understand and grasp the situation of investment in China, and shall also accelerate Private Equity healthy and steady development.
In Private Equity, an investor, often as a LP, has limited liability for fund debts according to the amount he has invested and do not participate in management directly. Whereas a fund manager as a GP, manages the fund and has unlimited liability for partnerships debts. This kind of cooperation model can motivate the GP to perform their managing duties with the amount of diligence or due care for realizing fund appreciation, so that can reduce the risk in the investors.
In short, limited partners do not directly involve in the management, investment decision-making and investment strategies are the responsibilities to the General Partner. In the definitely item of investment, Once General Partners refers to Conflict of Interest, Transactions or property assessment which they are not in accordance with the fact, Limited Partner shall assume the responsibility of supervision. Supervision is not involved in business, but giving full play to the regulatory function by the way of Supervision. Limited partner need to strengthen supervision of due diligence, that can reduce the risk of fund investment, and use it to achieve the benign operation of fund.
It is crucial to build a steady and reliable relationship between LP and GP to realize appreciation of fixed assets. There are three points need to pay attention: first, agreement is the foundation of the cooperation. The cooperation model of investor and manager in Private Fund is standardized by cooperation agreement. The jurisdiction of LP and GP is bound by the articles, so negotiation on the agreement is the most basic and the most important part. And second, The Coordination of economic interest is the bridge of steady relationship for cooperates. GP make investment and share risk so to accomplish a balance between all parties. Finally, fully communications and the exchange are the guarantee to the long-time business. GP and LP shall have full communication, which makes the investment process more transparent and better control the risk and crisis in the entire investment process.
In conclusionPrivate Equity Investor usually invests as the role of limited partner ,they are not directly involved in the management. It shall build a steady and reliable relationship with Fund Manager (GP) in order to effectively prevent risks and increase the value of fund. So negotiation, coordination of economic interest and full communication are the key efforts to build steady relationships.
