“What's an LP?”
We get asked this question a lot from friends and family. We wrote this article partly because we realized not a lot of people know about allocators, and partly because we just want to forward a link next time we’re asked.
Put simply, they are the investors providing capital to investment funds. When a general partner (GP) like a hedge fund, private equity (PE) shop or a venture capital (VC) firm launches a fund, they commit their strategy and track record, but it’s the LPs who write the checks. Without them, there’s no fuel for the engine.
While LPs are often associated with the types of GPs I mentioned above, they also commit to other alternatives like private credit and real assets. Also, to be clear, LPs don’t just invest in funds; some are very active direct investors in private markets (Canadian pensions, I’m looking at you) and public markets (check out the Norwegian sovereign wealth fund’s portfolio here).
In general, they fall into two camps:
Institutional LPs
These are the largest investors, often managing billions (sometimes trillions) in assets. They include:
Pension Funds – managing retirement savings for millions of workers.
Sovereign Wealth Funds – investing national reserves with very-long horizons.
Endowments & Foundations – universities and nonprofits growing assets to fund missions.
Insurance Companies – matching long-term liabilities with long-term investments.
Funds of Funds – LPs that pool capital to invest in a basket of alternative funds; a matryoshka of LPs, if you will.
These players often have rigorous diligence processes, defined allocation strategies, and internal investment teams that spend months evaluating where to allocate capital.
Non-Institutional LPs
These are typically high-net-worth individuals and family offices. They often:
Move more nimbly.
Have more flexible mandates.
Rely more on trust and relationships a bit more than structured committees.
That said, some family offices operate almost like mini-institutions, with investment teams and formal processes.
Parting thoughts
LPs are the money behind the money. They decide which funds get raised, which strategies thrive, and ultimately how trillions of dollars flow into various investments. Their decisions shape the ecosystem more than any single GP can. You’d be hard pressed to find someone that is not a benefactor of one of these institutions, whether directly or indirectly.