What is a private partnership?
Types of Private Partnership Investments
A private partnership investment refers to an investment in a privately-held partnership structure, often used for pooling capital from multiple investors to engage in a specific business activity. These partnerships are not publicly traded and are generally illiquid, meaning they cannot be easily sold or exchanged for cash. Private partnerships are commonly used in various sectors, including real estate, venture capital, and private equity.
In a general partnership, all partners share in the management of the business and are personally liable for the partnership’s debts. This structure is less common for large-scale investment activities due to the unlimited liability of the partners.
This is the most common structure for private investment funds. In a limited partnership, there are general partners who manage the investment and limited partners who are passive investors. Limited partners have limited liability and are not involved in the day-to-day management of the partnership.
In this structure, all partners have limited liability, offering protection from the actions of other partners. LLPs are commonly used in professional services like law and accounting.
Common Sectors for Private Partnership Investments
Different Investment structures
Investment partnerships come in various forms, each with its own focus and structure. Real estate private equity pools money for real estate ventures, venture capital targets early-stage, high-growth companies, and private equity spans activities from buyouts to growth capital. Hedge funds aim for high returns through diverse strategies, while infrastructure funds seek long-term, stable returns by investing in large-scale projects like airports and highways.
Investors pool their money to invest in real estate assets. The partnership may focus on various types of real estate, such as commercial properties, residential units, or development projects.
Partnerships in this sector invest in early-stage companies with high growth potential. Venture capital funds are often structured as limited partnerships.
These partnerships invest in a range of activities, from buying out public companies to make them private, to investing in private companies looking for growth capital.
Although not always structured as partnerships, hedge funds often use a limited partnership structure. They engage in a wide range of investment strategies aimed at generating high returns.
These funds invest in large-scale projects like airports, highways, and energy facilities. They are often structured as limited partnerships and seek long-term, stable returns.
Key Considerations
Weighing the Options
Private partnership investments offer the potential for high returns but come with higher risks and complexities. Therefore, they are generally more suitable for sophisticated investors, such as institutional investors or high-net-worth individuals, who understand the intricacies and are capable of bearing the risks involved.
General partners typically charge management fees and may also take a percentage of the profits (carried interest).
Given the complexity and risks associated with private partnerships, thorough due diligence is crucial before making an investment.
Private partnerships are subject to different regulatory requirements compared to publicly-traded entities, often providing less transparency to investors.
The tax treatment of income from private partnerships can be complex and varies depending on the jurisdiction and the structure of the partnership.
Partnering with Lumicre
WE KNOW THE Private markets
At Lumicre, we specialize in helping you navigate these critical considerations in private partnerships. From understanding the illiquidity of your investment to breaking down complex management fees and carried interest, we offer expert guidance every step of the way. Our team also ensures you're well-equipped for thorough due diligence while helping you navigate the maze of regulatory requirements and tax implications.
