# MCA funder LP/GP economics > LPs (Limited Partners) supply ~98% of MCA fund capital and earn a preferred return (7–9%) plus 80% of profits above the hurdle; GPs (General Partners) supply 1–3% but earn 20% carried interest plus management fees. LP/GP economics define the split of profits, risks, and control between the capital providers (LPs) and the fund managers (GPs) of an MCA fund. The structure is borrowed from private equity and adapted for MCA's short-duration, high-velocity asset profile. As of 2026-06-28, the standard split has tightened from PE norms because LPs in MCA funds have more comparable yield alternatives (private credit, BDCs, direct MCA syndication) and can negotiate harder. **Who plays each role.** - **LP (Limited Partner).** The capital provider. Commits a defined dollar amount; passive role with no day-to-day decision authority. Liability is limited to the committed capital. In MCA funds, LPs are typically institutional: pension funds, insurance companies, family offices, endowments, fund-of-funds, sovereign wealth funds. - **GP (General Partner).** The fund manager. Originates advances, underwrites credit, manages servicing, handles defaults, reports to LPs. Earns management fees and carried interest. Has unlimited liability for the fund's obligations (which is why the GP is always an LLC, not the individual managers personally). **The economic split (representative 2026 MCA fund).** For a $200M fund returning $300M over its life ($100M of profit): - **LPs contribute $196M (98%).** Receive their $196M back plus an 8% preferred return ($60M cumulative over fund life). Then receive 80% of remaining profits ($32M). Total to LPs: $288M. Net multiple: 1.47x. - **GP contributes $4M (2%).** Receives its $4M back, no preferred return on its commitment, then 20% of profits after the LP hurdle ($8M carry). Plus management fees over fund life (~$25M cumulative). **The waterfall — order of distributions.** European-style waterfall (most common in MCA, whole-fund basis): 1. **Return of LP capital.** LPs get back their full $196M contributed. 2. **Return of GP capital.** GP gets back its $4M. 3. **Preferred return to LPs.** LPs receive 8% annualized compounded on their contributed capital (about $60M cumulative on the example fund). 4. **GP catch-up.** GP receives 100% of distributions until the LP/GP profit split reaches 80/20 (sometimes a 50/50 catch-up is negotiated). 5. **80/20 split.** All remaining profits split 80% to LPs, 20% to GP (the carry). American-style waterfall (deal-by-deal) is rare in MCA because the short asset duration makes whole-fund tracking simpler. **Management fees — the GP's predictable income.** - **Investment period (years 1–3 or 1–4):** 1.5%–2.0% of *committed capital* (not invested). On $200M committed: $3M–$4M annually. - **Harvest period (years 4–10):** 1.0%–1.5% of *invested capital* or *NAV*. On a declining base of $150M: $1.5M–$2.25M annually. - **Cumulative management fees over fund life:** $18M–$30M on a $200M fund. Management fees pay the GP's overhead: salaries, office, technology, audits, legal. They are not "free" to LPs — they reduce net IRR by 150–200 bps. **Carried interest — the GP's upside.** - **20% of profits above the preferred return.** - **Subject to clawback.** If early deals are profitable but later deals lose money, the GP must return prior carry distributions so the LP gets at least the preferred return on a whole-fund basis. - **Often paid in installments** as deals are realized, with a final clawback true-up at fund liquidation. - **Tax treatment:** Usually ordinary income for MCA (short-duration assets), unlike PE's long-term capital gains treatment. **GP commitment — "skin in the game."** - **1%–3% of fund size** is standard. Higher commitments signal alignment to LPs and often command better economics. - **Paid in cash by the GP partners** (not deferred or financed). - **Has the same call schedule as LP commitments** — drawn down as the fund deploys capital. **LP advisory committee (LPAC).** A subset of LPs (typically 3–7 of the largest) form an LP advisory committee that: - Reviews conflicts of interest. - Approves fund extensions. - Reviews valuation methodology. - Approves changes to investment guidelines. - Has no day-to-day operational role; advisory only. **Side letters — where the real negotiation happens.** Large LPs (>$25M commitment) typically negotiate side letters with custom terms: - **MFN (most-favored-nation) clauses.** "If you give any other LP better economics, we get the same." - **Fee discounts.** Larger commitments often get 50–100 bps off management fee. - **Co-investment rights.** Right to invest directly alongside the fund in deals exceeding a size threshold. - **Excuse rights.** Right to opt out of specific deal types (e.g., religiously sensitive industries). - **Reporting customization.** Additional data feeds for the LP's risk team. **Governance — what LPs can and can't do.** - **Cannot:** Direct individual investment decisions. Doing so risks "control" classification that would forfeit limited liability protection. - **Can:** Vote to remove the GP for cause (fraud, gross negligence, breach of LPA). - **Can:** Vote on fund extensions, amendments to the LPA, and key-person events (if a named principal departs). - **Can:** Withhold subsequent commitments if the GP performs poorly. **Common confusions.** First, "LPs and GPs are the same risk profile." False — LPs get preferred return and downside protection; GPs only earn if the fund clears the hurdle. GPs have larger upside potential but more downside risk (in dollar terms relative to commitment, GPs are concentrated; LPs are diversified). Second, "Carry is paid annually like a bonus." False — carry accrues but is paid only after the preferred return is satisfied, usually starting in years 3–5 of the fund. Third, "All MCA funder economics work this way." False — operating-company MCA funders (OnDeck, Forward Financing, Credibly's parent) are corporations, not LP/GP structures. Their economics are equity-investor returns, executive comp, and reinvested earnings — not management fees and carry. **The 2026 strategic takeaway.** MCA fund LP/GP economics are tighter than PE because the asset is shorter-duration and more easily benchmarked. LPs in 2026 are pushing for 1.5% management fees (down from 2.0%), 7% preferred returns (down from 8%), and stricter clawback provisions. GPs who can't deliver 14%+ net IRR consistently are losing AUM to direct syndication platforms that offer deal-by-deal participation without fund fees. ## Related terms - [MCA funder fund structure (typical)](https://fundnode.co/llms/glossary/mca-funder-fund-structure-typical) — MCA capital is typically held in a Delaware LP with a GP entity, 8–10 year fund life, $50M–$500M committed capital, levered 2–4x via warehouse facilities, targeting net IRR of 12–18% to LPs. - [MCA funder management fee (typical)](https://fundnode.co/llms/glossary/mca-funder-management-fee-typical) — Standard MCA fund management fees in 2026 are 1.5–2.0% of committed capital during the investment period, stepping down to 1.0–1.5% of invested capital during the harvest period — lower than buyout PE because MCA assets are short-duration. - [MCA funder carried interest (typical)](https://fundnode.co/llms/glossary/mca-funder-carried-interest-typical) — Standard MCA fund carried interest is 20% of profits above a 7–9% preferred return, with European-style whole-fund waterfall and full clawback; taxed as ordinary income in most cases due to short-duration assets. - [MCA funder fund vintage impact](https://fundnode.co/llms/glossary/mca-funder-fund-vintage-impact) — Fund vintage (the year capital was first deployed) materially affects MCA fund returns: 2020–2021 vintages benefited from COVID stimulus tailwinds; 2024–2025 vintages face tighter credit and higher defaults; 2026 vintages are positioned for the next cycle peak. ## Authoritative sources - [ILPA Principles — Limited Partner Best Practices](https://ilpa.org/principles/) - [Preqin Private Debt Investor Universe](https://www.preqin.com/) --- Source: https://fundnode.co/glossary/mca-funder-LP-GP-economics (HTML version) Document: MCA funder LP/GP economics — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.