Special Limited Partnership (SLP) as an Alternative Investment Fund

A Special Limited Partnership (SLPs) is becoming increasingly popular as a structure for investment funds. They merge elements of general partnerships and limited partnerships to create a flexible investment structure that is perfect for alternative investments. 

An SLP operates like a typical limited partnership where at least 2 partners contribute capital and share profits based on their investments. Unlike traditional limited partnerships, SLPs and a Reserved Alternative Investment Fund (RAIF) give investors a more flexible investment structure. This flexibility is because SLPs aren’t subject to the same regulatory requirements as the alternatives.

SLPs allow investors to take part in alternative investments without having to take on the full investment risk. This is because general partners take on unlimited responsibility for all the debts or claims, while limited partners only risk their invested money.

Key Features of a Special Limited Partnership

A key feature of an SLP is that it provides investors with limited liability protection like a limited partner. This means that the general partner, who acts as the fund manager, takes unlimited responsibility for any debts or claims incurred. Still, limited partners only risk the capital they have contributed to the fund.

Another feature of an SLP is its flexibility in terms of governance and investment strategy. The fund’s organizational and operational agreement outlines the fund’s investment guidelines and management structure. The fund can be customized by Thales Capital to meet the needs of its investors and the investment strategy being pursued.

Similar to a Capital Risk Fund (SICAR), SLPs also offer tax advantages to investors. The income and losses generated by the fund are passed through to the individual partners who report them on their tax returns. This results in tax savings for investors.

Benefits of Using Special Limited Partnerships in Alternative Investment Funds

SLPs, like any Specialized Investment Fund (SIF), offer tax benefits due to their flow-through taxation structure. Earnings and losses of the fund are passed through to the limited partners rather than being taxed at the fund’s level, making it beneficial for investors with significant capital gains. SLPs can decrease the fund’s overall cost of capital as it provides investors with a more flexible and attractive fund structure.

Risks and Challenges Associated with Special Limited Partnerships 

While SLPs can be beneficial for investors, they also pose several risks and challenges. Firstly, they require significant capital to invest, making it an exclusive form of investment. Moreover, the partnership’s general partner can face unlimited liability if the fund incurs debts or obligations that exceed the limited partners’ contributed capital.

The limited partners don’t play any role in asset management. They cannot take part in making decisions related to the fund’s operation or make specific investments.

Management and Governance of a Special Limited Partnership

The roles and responsibilities of general and limited partners are laid out in the partnership agreement. General partners may make investment and operational decisions, while limited partners only participate in the fund’s profits and cannot control its management.

The general partner has unlimited liability, while limited partners’ accountability is limited to their investments.

The voting rights and decision-making process for an SLP are defined in the partnership agreement. The general partner usually has the sole power to make investment decisions, but the most valuable decisions, like the sale of the fund or changes to the governance structure, frequently require the approval of the limited partners as well.