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Alignment of Interests: Keys to the Ideal GP-LP Partnership

Posted by: In: Newsletter 16 Jul 2014 Comments: 0

By Jim Hynes, Managing Director

Rockspring believes in three factors to successfully structure a partnership between investment managers/general partners (GPs) and limited partners (LPs) to turn real estate opportunities into profitable returns for both stakeholders.


Low Fees
A GP should have a low management fee in place, enough to pay for business operating costs. Additional fees for acquisition, debt placement, asset management and development, or a “lift” should be avoided. These expenses reduce profits for LPs while GPs make money no matter how profitable the deal works out.

Profit Sharing/Carried Interest
This is meant to serve as the primary financial incentive for a GP. Profit distribution should only occur after the LPs receive back all capital invested and a preferred return. It should be calculated only back-end based and not deal-by-deal. This whole fund distribution model encourages managers to generate an attractive overall fund return.

GP Commitment
Finally, the GP should make a meaningful financial contribution to the fund. Having some of the GP’s net worth invested alongside the LPs is a powerful “skin in the game” motivator.

Rockspring has successfully raised and invested more than $300 million of investor capital and believes that we have found the right formula of low fees, profit sharing/carried interest and GP commitment to attract and reward premier investment partners.


About the Author
Jim Hynes, Managing Director, is responsible for business development activities at Rockspring Capital related to prospective investors in the company’s Texas land investment funds. Jim’s experience includes executive leadership positions with both public and private real estate equity firms.

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