Limited Partnership Agreement
The binding contract governing a fund's operations — capital commitments, fees, distributions, and the rights and duties of the general and limited partners.
Definition
A limited partnership agreement (LPA) is the contract that actually governs a fund organized as a limited partnership — it sets out the rights and obligations of the general partner (GP) who manages the fund and the limited partners (LPs) who invest passively. Funds organized as a corporate or trust vehicle instead of a partnership use an economically equivalent document, typically called an operating agreement, articles, or a fund constitution, but the LPA is the standard term across the hedge fund and private-fund industry regardless of the exact entity type used.
Where the private placement memorandum describes the fund's strategy and risks in narrative form, the LPA is where the binding, enforceable terms actually live: management fee and performance fee rates, the distribution waterfall, capital call mechanics, transfer restrictions, indemnification of the GP, and the process for amending the agreement itself.
The LPA is a single document that applies to the fund as a whole, but individual investors can and commonly do negotiate additional or different terms through a separate side letter executed alongside it — the LPA remains the baseline; the side letter modifies it for that one investor.
Why it matters
The LPA is the document that actually controls what happens in every scenario that matters to an investor: how fees are calculated and crystallized, what happens on redemption, how a clawback of prior carried interest works if performance later reverses, and what rights LPs have if the GP is replaced or the fund is wound down.
Because it is the enforceable contract rather than a disclosure narrative, ambiguity or gaps in the LPA create real legal risk — a term that is only described loosely in the PPM but left undefined in the LPA is, in practice, undefined for enforcement purposes.
What an LPA typically covers
A typical LPA sets out: capital commitments and the capital account mechanics for tracking each investor's balance; the fee and distribution waterfall terms, including any hurdle rate and high-water mark; GP powers and duties, including investment authority and any restrictions; indemnification and exculpation of the GP for good-faith decisions; transfer and withdrawal restrictions, including any lock-up period; key-person provisions that trigger investor rights if named principals leave; and amendment procedures, typically requiring GP consent plus a defined majority of LP interests.
It also typically defines the events that dissolve the partnership — GP resignation without a replacement, a supermajority LP vote, or a fixed term expiring — and how remaining assets get wound down and distributed.
Common mistakes
Assuming a side letter automatically overrides the LPA for every investor rather than just the one who signed it — a side letter only binds the fund and the specific counterparty to it, unless it grants a most-favored-nation right that lets other similarly-situated investors elect the same terms.
Underestimating how broad standard GP indemnification language is — LPAs commonly indemnify the GP for any action taken in good faith, which is a meaningfully lower bar than requiring the GP to have been correct or even prudent.
Treating the LPA's amendment threshold as a formality — a fund that can be amended by GP action alone, with no LP consent required, concentrates far more power with the manager than one requiring majority-in-interest approval, and this varies significantly between funds.
Confusing the LPA (the binding governance contract) with the private placement memorandum (the disclosure narrative) — when the two describe a term differently, it is the LPA language that is enforceable.
In practice
Crypto funds using a standard limited partnership or master-feeder structure typically use an LPA drafted from the same institutional template as a traditional hedge fund, but with strategy-specific additions: authority (or restrictions) around self-custody of digital assets, provisions addressing hard forks, airdrops, or staking rewards received on fund-held tokens, and GP authority to move assets between exchanges, custodians, and on-chain wallets as part of ordinary operations.
Because the LPA is what actually defines fee crystallization, waterfall order, and clawback mechanics, funds commonly test their own economics against the exact LPA language using a fee model before finalizing amendments, so a drafting change doesn't produce an outcome nobody intended.
Questions, answered
What is a limited partnership agreement?
A limited partnership agreement (LPA) is the binding contract that governs a fund structured as a limited partnership, setting out the rights and duties of the general partner who manages it and the limited partners who invest in it — including fees, distributions, and governance.
Is the LPA the same document as the PPM?
No. The private placement memorandum describes the strategy and discloses risks; the LPA is the enforceable contract that actually governs fees, distributions, and fund operations. Where the two differ, the LPA controls.
Can an investor get different terms than what the LPA says?
Yes, through a side letter negotiated between that investor and the fund. A side letter modifies or supplements the LPA for that specific investor without changing the base agreement for everyone else, unless it includes a most-favored-nation clause.
What happens if the LPA and the PPM disagree on a fee term?
The LPA is the binding legal document, so its terms control in the event of a conflict. A mismatch between the two is treated as a drafting error that needs correcting, not a choice between two valid versions.
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