GP Skin in the Game

1,503 funds and 20 years of data point to the GP commitment sweet spot 📍(spoiler: more isn’t always better)

Earlier this year, one of my school-aged kids came to me with what he thought was a brilliant idea. A diehard football fan, he felt very confident about the outcome of an upcoming game. His pitch? I place the bet with my money. If he’s right, we split the winnings 50/50. If he’s wrong, I eat the loss.

Needless to say, I passed (you would’ve too).

And no, not just because sports betting is illegal. But because what he was proposing is a textbook example of misaligned incentives. The kid was attempting the oldest trick in the book: using OPM (other people’s money) with no skin in the game.

This is not my kid, for the record (I’m not that old yet)

Which brings us to private placements, where the same principle applies. When General Partners (GPs) invest their own capital alongside Limited Partners (LPs), it serves as a critical alignment mechanism.

Real money on the line = the GP believes in the strategy and is willing to bet on it (and not just with his mom’s dollars).

The data backs this up. Multiple studies show a clear pattern: fund performance improves when GPs have meaningful skin in the game. But there’s a catch: the benefit plateaus (and then diminishes) beyond a certain point.

Of course, no conversation about skin in the game would be complete without discussing the ways to sell the stakes:

GP Stakes Investments: a New(ish) Frontier

So what does real “skin in the game” look like? In this post, we’ll discuss:

✅ Typical co-investment ranges
✅ What the data suggests is the optimal range
✅ Why a stated GP commitment isn’t always real skin in the game - and how tying up too much of a GP’s net worth can create its own risks.
✅ What LPs should actually look for when evaluating GP alignment

On a somewhat related note, info on fees in REPE:

Decoding the Fee Stack in REPE

📚 You’ll find all sources and additional reading material at the end of the post.