Limited Partner

In a limited partnership, there are two classes of partner. The general partner manages the partnership and bears unlimited liability. The limited partner — abbreviated LP — contributes capital, receives a share of returns, and is legally shielded from losses beyond what they invested. That liability cap is the defining feature of LP status, and it is why the structure is so widely used across private equity, private credit, real estate, and hedge funds.

Family offices are almost always in the LP seat when they invest in outside funds. A family committing capital to a private equity fund, for example, signs a limited partnership agreement and becomes one of many LPs alongside pension funds, endowments, and other families. The fund's manager acts as the general partner, making all investment decisions. The family office has no say in day-to-day operations and is not exposed to liabilities the fund incurs beyond its committed capital.

A common misconception is that LP status means entirely passive involvement. Sophisticated family offices often negotiate side letters — separate agreements that modify certain terms of the partnership agreement for that specific investor — and actively engage with fund managers through annual meetings and advisory boards. Understanding the LP relationship is foundational to manager selection and due diligence, since families are committing to a long-term, illiquid relationship with limited ability to exit early.