GP vs LP - Which is better

As the title says, I'm currently trying to grasp which is generally the better route. I understand everyone has their own opinion on which is best, but I'm hoping to learn from you all to make that choice myself. These are the main things I understand about the two sides:

  1. GP (invests a smaller portion of equity) gets more hands on experience on the deal. Not only sourcing the deal upon acquisition but also executing the business plan to earn a promotion. Business plan work includes leasing, capital plans, development, redevelopment, etc. Lots of local expertise in a given region and asset class. From what I understand the GP typically shares their Argus and excel models with the LP.
  2. LP (invests a larger portion of equity) gets more deals done given that the GP handles the asset management side of the deal. LPs are more in tune with the financing and capital markets side of investing at a more macro level. They deploy capital quickly by having relationships with many GPs that fit their investment criteria. LP reviews GP's Argus and excel models but also creates their own to challenge whatever the GP is assuming. Therefore working together to make the deal work for both sides.

I'd love to get everyone's thoughts on the following:

  1. What pays more?
  2. List of GP firms and List of LP firms
  3. Which gives you better exit ops?
  4. Is it easier to go from GP to LP or LP to GP?

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Comments (49)

Oct 29, 2020 - 3:44am

Great summary. As for which one is better, it depends on your preferences and interests. 

1 - LP definitely pays more. In a lot of cases, it's not even close. 
 

2 - Well known GP firms are Related, Hines, RXR, Vornado, Tishman Speyer, Fisher Brothers, and TF Cornerstone. 
Well known LP firms are Blackstone, Starwood, Carlyle, KKR, Cerberus Capital, and Apollo Global. 
 

3 - LP definitely gives better exit ops. On the LP side, you are seeing way more transactions from a wide range of business strategies. For example, SL Green(GP) is known for mainly investing in office buildings so most of their portfolio will consist of office assets. Whereas, if you were at Starwood, you would get to evaluate deals that involve financing for office, multifamily, industrial, retail, or hospitality assets. Recently, the big LPs have target specific submarkets without a defined asset class like life science facilities, cold storage warehouses, data centers, and production studios. And since the LP side involves what you would call "high finance" - basically large deals, think $400M loans, etc, you know how to work numbers. That can be a pathway to transition into other non-real estate finance roles or lateraling over to another sector in private equity. 
 

4 - Definitely easier to go from LP to GP. Many consider GP to be a step down from LP because at the GP level, you complete less deals because each GP has a specific strategy - some mainly just do office properties, others are masters at multifamily. Most of the time, guys in GP are trying to get to LP - more $$, better exposure, and better experience. 

  • Associate 1 in RE - Comm
Oct 29, 2020 - 3:55am

LP's do not pay more... Top tier GP's will out-pay guys like Invesco, PGIM, etc. and other are in-line with the likes of BX, Starwood, etc.

Lowest tier GP pays less than lowest tier LP, however. 

  • Investment Analyst in PE - Other
Oct 29, 2020 - 7:33am

I'm on the LP side and idk about the pay differential but I gotta say some of the economics the smart GPs get is absolutely mind blowing...makes me want to jump over there

Oct 29, 2020 - 9:43am

CRE Fanatic

4 - Definitely easier to go from LP to GP. Many consider GP to be a step down from LP because at the GP level, you complete less deals because each GP has a specific strategy - some mainly just do office properties, others are masters at multifamily. Most of the time, guys in GP are trying to get to LP - more $$, better exposure, and better experience. 

I disagree with this on almost every single level, but I can see how to some it would apply. Most likely a "to each their own" situation. 

Commercial Real Estate Developer

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Oct 30, 2020 - 4:12pm

Haha yes, as a fellow developer I agree with you entirely. I'd never try to move to the LP side, isn't at all what I'm interested in or skilled in. Also, it's absurd to imply deal volume the only metric that matters (GP is a step down b/c you complete less deals), I find working on a single deal far more interesting and valuable than trying to cover a lot at the same time. 

Nov 13, 2020 - 11:38am

Agree. If you're trying to jump to GP later than say 5 years into your career on the LP side you don't really add much value, particularly at a smaller firm where you don't have the support offered by larger firms. 
 

The jump from a large LP to a large GP is doable at the Associate level given many of these firms hire MBAs for these roles, including some who don't have a RE background. VP / Director much less so given you're now expected to lead or have a significant role in deals, LP skill set falls well short here.
 

GP to LP is still very doable. I did it myself and the grounding in real estate that I got by being in an Analyst role on the GP side first was extremely helpful in interviewing given the fund I'm now at focuses on opportunistic investments.
 

Oct 29, 2020 - 4:49pm

Without commenting on most of this, which I have mixed feelings about, and without repeating what others have said (essentially, it depends on what you want to do) - being on the GP side sets you up far better to do something entrepreneurial.

It is much easier to do a deal on your own with experience on the GP side, and translate that into a career.  How many folks working for LPs are gonna go out and raise their own funds?  Very few.  If you want steady income and a easily foreseen career progression, being on the fund side is great.  If you eventually want to do deals under your own shingle, that's a much easier road to travel if you're on the GP side.

Oct 29, 2020 - 9:06am

I did a longer response to a similar questions months back, this comes up often. 

I'll just offer a general observation...

I don't see a single true "Limited Partner" investor listed above, just names of various investment managers/developers who have different strategies. They are all GPs by the actual meaning of the investment strategy. Perhaps people are confused by joint-venture deals they do with local developers/sponsors, and thus "tagging" them as LPs?? 

Real "LPs"  (caveat, many have internalized direct real estate ops, but still more of indirect investment strategy focus) ..... CalSTERS, CalPERS, Texas Teachers, AIDA, AXA, Allianz) here is a good list from IPE Real Assets https://realassets.ipe.com/surveys/top-100-real-estate-investors-2019/1…

Investment Managers (aka "GP"s) listed here https://realassets.ipe.com/top-100-real-estate-investment-managers/top-…

Clearly, GPs can pay WAY more than investor/allocator (just looked the term, promoted/carried interest....), but of course that can with way worse hours and life. You are doing real deals, that's more work, and more pay. 

I'm not even going to address the GP to LP or LP to GP exit ops, its about your actual job/role/team/asset/strategy/etc., meaningless comparison at just the top level. 

Oct 29, 2020 - 9:47am

But they are talking about GP/LP on a deal level. The developer being the GP, and the investor, whether it be a private equity fund or investment manager, being the LP equity in the deal.

Oct 29, 2020 - 9:51am

Right, doesn't really change any part of my response, that is an investment strategy, not a firm type (i.e. the thrust of the question). All names being thrown around make both direct and indirect investments using lots of forms of JV/LP-GP relationships. 

LPs have a pretty distinct meaning in the REPE world, its the money that goes into their funds. They don't mean themselves investing in a deal. 

Oct 29, 2020 - 10:53am

That is not fair to say no upside, just more linear/corporate structure with far less volatility. Sure, a MD type running a high-yield fund could make an 8-figure bonus payout when promotes come in, but the the equivalent person running the real estate strategy at a major pension fund is easily a 7-figure per year person. I've had a few friends go work for ADIA (yes, they had to move to Abu Dhabi) because they were essentially guaranteed 7-figure earnings. 

My general point is that in WSO-land people often misunderstand these firms and investment types (not really people's fault, the term LP is legit used in different ways in the industry, end of the day it a legal term, not a business term, but gets conflated a lot). The idea that PGIM is any less of a true direct investor than Blackstone is silly, they overlap tons on strategy/investment type/deal structure, etc. Just that BX's core is the large high-yield, closed end diverse strategy funds while PGIM is best known for open-end, comingled diversified core funds. They are both in the Investment Management business, period. One a growth mode of a traditional PE shop the other an effective internal spin-off of an insurance company.   

Most Helpful
Oct 29, 2020 - 5:00pm

Incorrect. People who work at pension funds have the same promote structure for their job allocating the money. It's usually a 3-5 year look back period where they'll get a piece if their investment/allocations deals net returns exceed certain target. Now at a calpers like place where theres a big team, you probably won't see this incentive structure unless you're one of the top guys but let's say a smaller state pension, you will. 

Not to digress, but working for a true LP like the list redever posted is a legit job. Some of these groups will pay you 100% of your top 3 year salary after you retire till the day you die. Now put that math on excel over your 60-70 years of adult life and see what's a better deal. Be flashy and travel around with private jets working in the private sector and live off your retirement account after 55 or get paid six/seven figures (their salaries are all posted online) for 80 years....

Too bad I'm in the private sector, would've seriously considered working for a large state pension had I known this earlier. Also, those LP people (cept calpers) are usually chill as fuck and gets treated like royalty by EVERYONE, including their GPs, the brokers, the consultant what have you. If any of you have been to PREA conference as an LP, you will know what's its like to be a rockstar. You seriously will have to avoid networking events because GPs will swamp and butter up your ass like no other. The lesson is, WORK AS CLOSE TO THE SOURCE OF MONEY AS YOU CAN. 

Funny anecdotal story for yall, one of our LPs (state pension....god I hate this LP/GP vernacular bullshit) head guy decided at the start of the pandemic to go on a 1 month long road trip around the US. Needless to say, he's got all his lodging plans figured out as all the GPs (investment managers...) whom his pension gives money to started offering him their vacation homes/cabins/ranches for free. Now THAT'S GANGSTER. 

By the way, I get where OP is going asking this question, but it honestly is hard to define if your firm is LP or GP lol. We're GPs in some deals and LPs in other, but I'd never say I'm an LP investor hah. It's a weird concept that for some reason people make such a big deal out of. You're a RE Investment Company, that's it - kinda renders the point of this threat quite moot. Now if you really want to separate and categorize things, I think the correct terminologies and lifestyle/exit-entry ops are following:

- The Institutions - Pensions/Endowments - ex, calpers, sters, adia - Chill people, steady 6/7 figs for life, usually hire endowment consultants from firms like Meketa/RVK etc or super academic people with like 20 PhDs degrees (look at the head guy who just retired from ADIA).. Apparently, private sector folks don't see what a good lifestyle these pensions could give you.

- The Investment Managers (the Moochers) - "REPE" firms (WSO's favorite term), Close/Open-End fund managers - ex. BX, Oaktree, Carlyle, Hines/Jamestown Investment Mgnt,  - Usually prestige whores and like hiring ex bankers, legit income, private jet for work travels (which by the way, are terms inked in the fund/legal docs as part of "due diligence fees"!), FIRE movement here retire by 45 or start your own...

- Operators (the "GPs" talked about on this thread - GPs almost all the time on every deal - ex. developers/value-add players, very market dependent - Lifestyle is usually self-starter RE guys, GURUs of their own market, firms with low head counts and all employees are like families.

Choice is yours, just be good at your job and stop ranking shits....I swear you'll make enough money if you are good at whatever "category" you choose to work in. Great thing about the RE industry is most of everyone on this forum can fit in at least one of these categories and can have a comfortable life if they are passionate/enjoy what they do.

Array

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Oct 29, 2020 - 9:42am

ivy200

As the title says, I'm currently trying to grasp which is generally the better route.

  1. What pays more?

  2. List of GP firms and List of LP firms

  3. Which gives you better exit ops?

  4. Is it easier to go from GP to LP or LP to GP?

I want to preface this by saying there is not a "better route" - they are simply two sides of the same coin. That said: 

1. If we're talking analyst/associate pay, it's definitely LP. GP entry level pay is almost always going to be lower. Ultimately though, GP total comp can be higher, because it is almost always a more entrepreneurial route. 

2. You do realize how extensive and comically long this list would be, right? Google is your friend. 

3. Both give equal exit ops and are also both exit ops in their own right. 

4. GP to LP, in my opinion. It's much easier to play around with numbers in excel than it is to actually develop or run a property. But, as you can see, there are differences of opinion here, so each person will experience something different. 

Commercial Real Estate Developer

Oct 29, 2020 - 12:02pm

No better route. Depends on your personality. Are you willing to get down and dirty on deals, if so go the GP route? Or would you rather focus on modeling returns, then go LP. You can be successful and make a lot of money on both sides.

Array

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Funniest
Oct 29, 2020 - 3:48pm

How many times can we regurgitate the same question. In how many ways can we create pecking orders / hierarchies. Jesus.

Since when did everyone become some friggin' programmatic in the RE world? Someone on here always says it but f**k is this like the IB forum.

Thinking critically and deeply about what you are good at. Then think about what the daily functions of a GP/LP is. Where do you fit? In which position do you envision yourself being successful? Dude if you do something you're good at and enjoy the earnings potential are unlimited. Stop being so myopic (this is to new in the bus, not just OP). 

Anyways here are my responses to your questions:

1. It depends.

2. It depends your definition.

3. it depends

4. it depends

Stop with the bone head "which is better" type questions. You already know "your" answer so why even ask... Better is relative.

PS - good GPs make multiples of their LP counterparts. "Good" being the key word here.

Nov 2, 2020 - 8:39pm

ThatGuyBalls

How many times can we regurgitate the same question. In how many ways can we create pecking orders / hierarchies. Jesus.

Since when did everyone become some friggin' programmatic in the RE world? Someone on here always says it but f**k is this like the IB forum.

tbh I think allowing anonymous posting led to an increase in these types of questions, the IB forum is absolutely insane with its 1,000+ comment threads and baiting question types. Unpopular opinion, since it does allow people to ask more personal questions, which people wouldn't otherwise necessarily ask.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Nov 3, 2020 - 9:37am

Pierogi Equities

ThatGuyBalls

How many times can we regurgitate the same question. In how many ways can we create pecking orders / hierarchies. Jesus.

Since when did everyone become some friggin' programmatic in the RE world? Someone on here always says it but f**k is this like the IB forum.

tbh I think allowing anonymous posting led to an increase in these types of questions, the IB forum is absolutely insane with its 1,000+ comment threads and baiting question types. Unpopular opinion, since it does allow people to ask more personal questions, which people wouldn't otherwise necessarily ask.

Nothing has been worse for this entire site than anonymous posting.  It's the dumbest damn thing - you're already anonymous.  Somehow I doubt anyone's parents were cruel enough to name them "Pierogi Equities" (no offense).

Oct 31, 2020 - 1:51pm

Wonder how a typical GP compares to a syndicator. I'd imagine syndicators can pay more and its slightly more stable than other GP firms.

Array

  • Associate 2 in RE - Comm
Nov 3, 2020 - 10:03am

I am going from LP to GP at the end of the year. The firm I am going to has flexible, HNW capital and can really do any asset class or any strategy that makes sense. My current LP firm has very rigid investment criteria due to having institutional capital, a ton of reporting requirements, etc. and to be honest I am just exhausted from all the reps. This is a lateral transition and my base and salary are increasing by ~25%. I'll let you know if I hate it, but I am excited.

Nov 3, 2020 - 10:09am

Congrats!

Commercial Real Estate Developer

Nov 16, 2020 - 9:51pm

I have experience with both. Started with an owner/operator on the GP side and now with an institutional shop on the LP.

As great of an experience the GP side was with getting more granular, I enjoy the LP side way more. I guess because I like looking at bigger picture more so than the granular details. Still involved a ton though as we play a very active LP role and are almost like a Co-GP on some of our assets.

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