The concept of “skin in the game” is fundamental to the economics of PE funds and to the alignment of interests toward which LPs and GPs strive. The basic aspects of GP commitments have not changed dramatically over the years, and investors still expect GPs to commit meaningful amounts of their own money. The market-accepted size and source of GP commitments have undergone some changes in recent years, however, requiring sponsors to have a thoughtful approach to broaching the topic with their LPs, principals and employees. This first article in a two-part series discusses trends in GP commitment size and ways the GP commitment is sourced, which is often an issue of significant importance to investors. The second article
will delve into potential issues that arise when non-principals (e.g.
, employees and “friends-and-family” investors) contribute to the GP commitment; complications from disclosing the commitment to LPs; situations in which GP commitments can be increased; and the structures used to bring GP commitments into funds. For more about alignment of interests, see our two‑part series on the Institutional Limited Partnership Association Principles 3.0: “PE Economics and Related Fund Provisions
” (Jul. 30, 2019); and “Fund Governance and Disclosures
” (Aug. 6, 2019).