LP
Limited Partner
Fund investor providing capital. In Indian AIFs, structurally a 'Contributor' under the Indian Trusts Act framework — ₹1 crore minimum commitment.
A Limited Partner (LP) is an investor in a fund — provides capital to the fund in return for a share of investment returns. The 'limited' refers to limited liability: an LP's exposure is capped at the amount of its commitment.
In the Indian AIF context (where most funds are structured as trusts under the Indian Trusts Act 1882), the legal term is 'Contributor', but 'LP' is universally used in market parlance.
Typical Indian AIF LP profile:
- Domestic LPs: HNIs, family offices, multi-family offices, large corporates' treasury arms, banks (subject to RBI restrictions), insurance companies (subject to IRDAI norms), SIDBI's Fund of Funds, NIIF.
- Foreign LPs: Sovereign wealth funds (ADIA, GIC, Temasek), pension funds (CPP, OTPP), foreign endowments, foreign family offices, DFIs (IFC, ADB, BII, DEG, Proparco), funds-of-funds.
- Increasingly via GIFT City: foreign LPs route through IFSC-domiciled feeders for tax efficiency.
Minimum commitments (SEBI AIF Regulations):
- Cat I and Cat II: ₹1 crore per investor (₹25 lakh for Angel Funds; ₹25 lakh for employees/directors of the manager).
- Cat III: ₹1 crore.
- Sponsor's own contribution: 2.5% of corpus or ₹5 crore (whichever lower) for Cat I/II; 5% / ₹10 crore for Cat III.
LP rights:
- Pro-rata participation in distributions per the waterfall and class entitlements.
- Information rights — quarterly investor reports (mandated by SEBI), annual audited financials, Form 64C for tax filings.
- LPAC seat — large LPs often negotiate an LPAC seat or observer status.
- Side letters — MFN clauses, fee discounts, co-investment rights, capacity rights in future funds, ESG reporting commitments. SEBI now requires disclosure of differential rights to all LPs to limit MFN abuse.
- Excuse rights — exclusion from specific investments on legal, regulatory, or ESG grounds.
LP obligations:
- Honour drawdown notices within the specified period
- Maintain KYC and tax documentation (PAN, FATCA/CRS for non-residents)
- Respect transfer restrictions in the Contribution Agreement (most AIF interests are not freely transferable)
The fund manager — sponsors, raises, deploys, and exits the fund. In Indian AIFs, structured as Investment Manager + Sponsor + Trustee triangle.
SEBI's three-tier classification of pooled investment vehicles in India. Determines tax pass-through, leverage limits, and permitted investments.
Formal notice from a fund's GP to its LPs to fund a portion of their committed capital. Indian AIFs typically issue drawdowns 10–15 business days in advance.
GP's performance share of fund profits, typically 20% above an 8% preferred return hurdle. Recent SEBI rules tighten attribution and disclosure.
Order in which fund proceeds flow to LPs and GPs. Two main structures: European (fund-as-a-whole) and American (deal-by-deal). Indian AIFs lean European.