Skin in the Game on behalf of others? – On the significance of investor-financed GP commitments in the private equity market

The fund manager’s capital commitment (“GP commitment”) has long been regarded as a key mechanism for aligning the interests of the management team and investors. The basic assumption is that those who risk their own money make better decisions. But what if this capital does not actually come from the fund manager himself? In the Anglo-American private equity market, this is no longer a rarity: Fund managers are increasingly turning to financing structures in which the financial burden of the GP commitment is shifted - at least in part - onto investors. In Germany, this phenomenon has received little attention so far. The following article examines the common mechanisms, their structural implications, and the question of what investors, managers, and advisors in this country can learn from them.