Can Someone Please Explain This To Me: GP, LP, Sponsors, Principal Investor & Who Plays What Role

The Assman's picture
Rank: Gorilla | banana points 744

Here is my understanding:

The GP of a project is the group like Bozzuto that will maybe put up 2% co-invest but otherwise will source and bid on a deal and then seek financing through capital markets that makes up the other 98% of their equity. They execute the deal and all the LP provides is the cash. They get deals from brokers and screen them and decide if they want to put up equity. The GP's get a fat promote and the LPs get their preferred return and then some if all goes well.

Follow Up Questions:

Are Financial Sponsors the LPs? Because they are the ones sponsoring the deal in the financial sense?

Comments (5)

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Mar 8, 2019
Mar 9, 2019

GP = General Partner. On the deal level, the GP is normally a developer like Bozzuto. REPE funds also raise money in a partnership structure. Within the REPE fund, entity managing the fund is the GP, and their investors like HNW individuals, college endowments, or pension funds are the LP within the fund.

LP = Limited Partner. This just means that they don't have the authority to make decisions with the capital. The LP assesses the prospective GP's business plan and determines whether it will be successful or not at the terms available. At the deal level, the LP can HNW individuals, REPE funds, pension funds, etc. Many of these groups overlap with who could be an LP in a REPE fund. It just depends on their strategy.

Sponsor = Whoever is making the decisions. It can be the GP at the deal level. It can include the LP determing on how much influence they have over decisions.

Mar 9, 2019

Is the sponsor the one responsible for asset management typically?The Gp?

Mar 9, 2019

So GP in this case, Bozzuto, is the GP at 10%.

Is that 10% fully their equity or are they bringing in co-investors?

Need to brush up on my waterfall/investor return knowledge.

Mar 9, 2019