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Funds: Private Equity, Hedge and All Core Structures by Matthew Hudson

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Chapter 2

Limited Partnerships – Use in Alternative Asset Funds

2.1 INTRODUCTION TO LIMITED PARTNERSHIPS

2.1.1 Suitability of limited partnerships for alternative asset funds

A limited partnership is the vehicle most commonly used for closed-ended funds investing in the less liquid alternative assets, including private equity, venture capital, real estate, infrastructure and energy.

2.1.2 Benefits of limited partnerships

A limited partnership offers a range of benefits in this context including:

  • tax transparency (a limited partnership is effectively ignored for tax purposes and amounts received by the partnership (e.g. capital gains) retain their character when allocated to individual partners)
  • the liability of investors can be limited to the amount which they agree to contribute to the partnership and
  • a limited partnership is very flexible and subject to relatively few restrictions in terms of governance and profit sharing arrangements, which allows fund managers greater freedom than may be the case for other types of vehicle.

2.1.3 Types of limited partnerships

Limited partnerships are available across a range of different jurisdictions. The two most commonly used onshore jurisdictions are the UK and the US (typically Delaware). Commonly used offshore jurisdictions include the Cayman Islands and the Channel Islands (Guernsey and Jersey). Other jurisdictions such as Luxembourg are also available.

There are many similarities between limited partnership structures across jurisdictions. ...

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