General Partner (GP)

A general partner (GP) is the managing partner in a limited partnership who has full authority to make decisions on behalf of the partnership, manage operations, and bind the entity in contracts and transactions. In exchange for this control, the GP bears unlimited personal liability for the partnership's debts and obligations — a fundamental distinction from limited partners (LPs), who contribute capital but have no management authority and whose liability is capped at their investment.

GP vs. LP: The Core Structure

The limited partnership is one of the most common structures used to pool capital for mortgage note investing. The division of roles is clear:

This structure allows experienced note investors to leverage their expertise across a larger pool of capital than they could deploy alone, while giving passive investors access to an asset class that requires specialized knowledge to manage.

The GP's Responsibilities in Note Investing

In a mortgage note fund or joint venture, the GP is the operator who executes the investment thesis. Core responsibilities include:

Deal Sourcing and Acquisition

• Building relationships with sellers, brokers, and hedge funds to maintain consistent deal flow
• Reviewing data tapes and performing preliminary screening on loan pools
• Submitting bids and negotiating purchase prices

Due Diligence

• Managing the due diligence process — ordering title searches, BPOs, and borrower research
• Auditing collateral files and identifying exceptions
• Making the final go/no-go decision on each loan

Asset Management and Resolutions

• Directing the loan servicer on workout strategy for each non-performing loan
• Negotiating loan modifications, discounted payoffs, deeds in lieu, and foreclosures
• Managing REO properties through sale or disposition

Investor Relations and Reporting

• Providing quarterly performance reports to LPs
• Managing capital calls and distributions
• Maintaining compliance with the operating agreement and any private placement memorandum (PPM)

Compensation Structure

The GP is typically compensated through two mechanisms:

Management Fee

An annual fee — commonly 1–2% of assets under management — that covers the fund's operating expenses regardless of performance. This fee ensures the GP can maintain operations during periods when resolutions are in progress but not yet generating returns.

Carried Interest (Promote)

A share of the fund's profits — typically 20% — earned after LPs receive their preferred return (often 6–10% annually). The carried interest aligns the GP's incentives with investor performance: the GP earns the bulk of their compensation only when the fund generates returns above the agreed threshold.

This "2 and 20" structure (or variations of it) is standard across hedge funds and private equity funds in the note space.

Liability and Entity Structuring

Because the GP bears unlimited personal liability, most note fund operators do not serve as GP in their individual capacity. Instead, they create a separate LLC or corporation to act as the general partner entity. This provides a layer of liability protection while preserving the GP's management authority.

A common structure:

1. Fund entity — A limited partnership (LP) that holds the note assets
2. GP entity — An LLC controlled by the fund manager that serves as the general partner of the fund
3. LP investors — Accredited investors who subscribe to the fund's PPM and contribute capital

The operating agreement or limited partnership agreement governs the relationship between GP and LPs — defining authority, compensation, capital call procedures, distribution waterfalls, reporting requirements, and exit provisions.

GP in Joint Ventures vs. Funds

Not every GP/LP arrangement is a large fund. Many note investors start with simple joint ventures (JVs) where:

• The GP contributes expertise, deal flow, and management — handling all aspects of the acquisition and resolution
• The LP contributes 100% of the capital required to purchase the note
• Profits are split according to a pre-agreed ratio (e.g., 50/50 or 60/40 in favor of the capital partner)

JV structures are common entry points for aspiring note investors building a track record. By successfully managing JV capital and delivering returns, a GP establishes the credibility needed to raise a formal fund with multiple LPs.

Practical Considerations

• GP liability is real — Even with an LLC serving as the GP entity, operational negligence, fraud, or personal guarantees can pierce the corporate veil. Consult an attorney experienced in fund formation.
• Track record is currency — LPs invest in the GP's demonstrated ability to source, diligence, and resolve notes profitably. Document every deal outcome.
• Alignment of interests matters — The best GP structures ensure the GP has meaningful capital invested alongside LPs, so both parties share in the upside and downside.
• Regulatory compliance is non-negotiable — Raising capital from passive investors typically requires compliance with SEC Regulation D (Rule 506(b) or 506(c)) and applicable state securities laws. Work with a securities attorney before soliciting investors.