Explain the structure and roles of each party of a Private Equity firm that is organized around a fund, a general partner, and a limited partner.

Structure of the Private Equity Firm:

• A private Equity Firm is an investment firm which either invests their own funds or raises a series of funds from General Partners who in turn receive money from Limited partners to buy or invest in private companies that are not listed on the stock exchange (or buy a public company 7 later de-list it from the stock exchange) to generate returns. The company purchased is called the "Portfolio Company" or "Portco"
• The Fund partners of the Private Equity firm are called "General Partners" and the Private Equity firm raises a series of funds from the General Partners to invest in the companies. In this structure, the General partners will have all the rights and authorities to decided regarding the company in which the Private Equity Firm can go ahead and invest in.
• In the structure, General Partners are responsible for gathering the funds to provide to a Private Equity firm to invest in the companies and those funds are gathered by General Partners through a party called "Limited Partners"
• Limited partners are the ones who provide funds to General Partners and Limited Partners could be High Net worth Individuals, Endowment Funds, University endowment funds, Insurance companies, institutions, and institutional investors, and more.

Hence the structure looks like this:

Limited Partners >> General Partners >> Private Equity Firms >> Portfolio Companies.

• Limited Partners provides funds to the General Partners.
• General Partners are required to pay Private Equity Firms when they make a "Call" of funds.
• Private equity funds identify and invest in companies after approval from General Partners.

Role of General Partners:

• They commit capital and invest in private and public companies (taken private after investment) generated from institutional investors.
• They are responsible to take a call on the decision on investment, manage the funds, generate returns for institutional investors i.e Limited Partners.
• They are responsible for exiting an investment at the right time.
• Manage a series of funds and provide funds to Private Equity firms when they "make a call" for funds.
• General Partners also are responsible for charging performance fees and management fees to the Limited Partners for managing their funds and generating returns.

Role of Private Equity firm:

• They are responsible for performing diligence about a potential target company that General Partner is interested to buy or invest in.
• They are responsible for generating returns on the funds disbursed by General Partners.
• They are responsible for raising a series of funds from General Partners.
• They are responsible for deal closing and sourcing.
• They are responsible for the management, improve the operations including cutting various unnecessary expenses and costs.

Role of Limited Partners:

• They are the investors or funds which provides capital to the General Partners for investment
• Their only role is to provide capital and they have no say in the decision-making of Private Equity firms about where the funds are going to be invested.
• They are responsible only to the extent of money invested by them and nothing more.

Funds - These are usually institutional investors, endowment funds, university funds, and institutional investors who have a capital outlay and would like to generate returns. These funds issue and allocate this capital to General Partners to generate returns.