How does GP commit work?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The GP (fund manager) invests 1-5% of the fund alongside LPs. This 'skin in the game' aligns interests — if the fund loses money, the GP loses too. It's typically funded from partners' personal wealth or management fee offsets. A GP commit of below 1% raises LP concerns about alignment.
WHAT INTERVIEWERS LISTEN FOR
- ✓GP invests 1-5% of fund
- ✓Aligns GP and LP interests
- ✓Funded from personal wealth or fee offsets
- ✓Below 1% raises LP concerns
COMMON MISTAKES
- ✗Confusing GP commit with management fee
- ✗Thinking GP commit is optional
- ✗Assuming GP commit is always 1%
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