A real estate fund sponsor preparing for its first institutional raise sits across the table from a pension fund allocator. The sponsor has a strong track record, a compelling strategy, and a well-structured offering. The allocator’s due diligence questionnaire asks a question that the sponsor has not fully thought through: who makes investment decisions at the GP level, under what approval standard, and how are conflicts of interest identified and resolved internally?
The sponsor can answer the first part of the question easily. The two founders make the decisions. But the follow-on questions, about approval thresholds, committee authority, conflict procedures, succession planning, and documentation of the decision-making process, expose something the sponsor did not expect: the fund’s governance architecture, which the sponsor thought of as an internal organizational detail, is actually a commercial consideration that institutional investors evaluate carefully.
The governance structure of a real estate fund’s general partner determines who has authority to act, how quickly action can be taken, what internal oversight exists when stakes are high, and how the platform continues to function when principals change. It also affects how clearly the fund can answer the institutional due diligence questions that increasingly determine whether a sponsor can raise capital from the LP base it is trying to build. This post addresses the two primary GP governance models, manager-managed and board-managed, from the legal and operational perspective that real estate fund sponsors need to understand when designing the GP structure that will serve the platform across the full life of the fund.
The Delaware Statutory Foundation: Where the Authority to Design Comes From
Most real estate fund GP entities are organized in Delaware, either as LLCs or as the general partner of a Delaware limited partnership. Delaware’s approach to entity governance is strongly contractarian: the LLC Act and the Revised Uniform Limited Partnership Act both give the governing agreement maximum effect to define authority, voting rights, management structures, and the standards that apply to decision-makers. Delaware courts enforce clear governing agreement provisions without substituting judicial judgment about fairness for what the parties agreed.
That contractarian approach is both a freedom and a responsibility. The freedom is that sponsors can design virtually any governance structure they want, assigning authority to individual managers, small management groups, committees, or advisory boards, with whatever approval thresholds, quorum requirements, and delegation mechanics the business requires. The responsibility is that the structure must be designed deliberately and documented clearly, because a Delaware court presented with a governance dispute will start and often end with the text of the governing agreement. Vague authority provisions do not produce flexible outcomes. They produce contested ones.
Delaware’s LLC Act, codified in Title 6 of the Delaware Code, expressly permits manager-managed LLCs in which management authority is vested in designated managers rather than in all members. It also permits the creation of classes or groups of managers with different authority, the delegation of management powers to committees or other persons, and the contractual modification or elimination of most fiduciary duties, subject only to the non-waivable floor of the implied covenant of good faith and fair dealing. The Delaware Supreme Court’s decision in Cantor Fitzgerald v. Ainslie, issued January 29, 2024, reinforced the enforceability of specific contractual provisions in partnership contexts, confirming that clear governing agreement language controls outcomes in disputes.
The Manager-Managed GP: Concentrated Authority and Operational Speed
What Manager-Managed Means in Practice
A manager-managed GP is an LLC or LP in which management authority is vested in one manager or a small group of designated managers under the governing agreement, rather than in all members or partners collectively. In real estate fund practice, this typically means the founding principals or a small control group have the authority to bind the GP entity, approve investments, engage service providers, execute documents, and make the operational decisions that fund management requires, without routing those decisions through a layered approval process.
In a manager-managed LLC, members who are not designated managers hold economic interests but have no automatic management authority. They are not agents of the company solely because of their membership. That separation between economic rights and management authority is a feature, not a limitation: it allows the GP to bring in carry recipients, economic participants, and even outside investors to the GP entity without giving all of them authority over fund operations. The economic structure can be distributed more broadly than the governance structure, and the governing agreement controls how broadly each extends.
The Execution Advantage
The most immediate practical advantage of a manager-managed GP is the ability to act quickly. In real estate fund management, speed matters at specific moments. When an acquisition is approaching an exclusivity deadline, when a financing commitment requires execution authority, when a portfolio company needs an urgent decision about a lease, a construction change order, or a lender workout, a GP structure that requires routing every decision through a formal committee process before action can be taken is a GP structure that will sometimes be too slow.
That execution advantage is most significant for emerging sponsors and smaller platforms. A team of two or three founding principals who are collectively responsible for sourcing, underwriting, asset management, investor relations, and fund operations does not benefit from governance layers that add process without adding oversight. The principals already know everything relevant to every decision. A manager-managed structure that empowers them to act directly reflects that operational reality.
What Manager-Managed Structures Require to Work Well
The concentration of authority that makes manager-managed structures efficient also creates specific risks that the governing agreement must address directly. Concentrated authority without adequate succession provisions means the fund’s operations depend on the continued participation of a narrow group of individuals. Concentrated authority without defined conflict procedures means that transactions involving affiliated parties, valuation decisions, and allocation choices are made by the same people who benefit from those decisions, without any formal process for identifying and managing the conflict.
A well-drafted manager-managed GP operating agreement addresses at minimum: who the designated managers are and how they are identified, replaced, or removed; what decisions require unanimous consent versus majority approval among multiple managers; what happens if managers are deadlocked; how conflicts of interest are disclosed and resolved; what succession provisions apply if a manager becomes incapacitated, resigns, or is removed; and how the governing agreement interacts with the key person provisions of the fund’s LPA. The absence of any of those provisions does not make the manager-managed structure invalid. It makes it vulnerable to exactly the scenarios where clear authority is most necessary.
The Board-Managed GP: Oversight, Process, and Institutional Durability
What Board-Managed Means in Practice
A board-managed GP structure is not a distinct statutory category under Delaware law. It is a contractual design in which the governing agreement creates a governance body above or alongside the day-to-day executives, routing specified categories of decisions through a formal approval process with defined membership, quorum requirements, voting thresholds, and documentation requirements. The governance body may be called a board of managers, an investment committee, an advisory committee, or any other label. What makes it a board-managed structure is that the approval process is documented, the authority of the governance body is defined by the governing agreement, and the executives cannot act on reserved matters without satisfying the approval requirements.
The board-managed structure separates execution from oversight at the GP level. Senior investment professionals continue to source deals, manage assets, and run the day-to-day operations of the fund. But material decisions, new investment commitments, major capital expenditures, affiliated transactions, key personnel changes, fund extensions, and strategy modifications, are subject to review and approval by the governance body before they can be implemented. That separation is the defining structural feature, and it is what institutional investors are asking about when they ask how investment decisions are made and how conflicts are managed.
Why Board-Managed Structures Become More Valuable as Platforms Scale
The case for a board-managed GP structure is strongest when the platform has grown beyond the point where the founding principals can informally supervise everything that affects the fund. A sponsor managing a single $50 million first fund with two principals reviewing every transaction can operate effectively under a manager-managed structure. The same sponsor managing three funds across different vintages, with eight investment professionals, two separate strategies, and a growing investor base that includes sovereign wealth funds and pension plans, has a governance problem that informal authority structures cannot reliably solve.
AIMA’s analysis of fund governance trends, which draws on developments across the private equity and real estate fund industry, confirms that increased scrutiny of LP advisory committees and the independence of the GP has resulted in a significant increase in the establishment of advisory or governance committees for private funds over the past five years. That trend reflects LP pressure, not just operational preference. Institutional investors who are committing capital to a platform across multiple vintage years need to believe that the governance system will continue to function if founding principals step back, that conflicts will be identified and managed through defined processes rather than through personal judgment, and that valuations will be approached consistently using documented methodologies.
The Investment Committee as the Most Common Implementation
In real estate fund practice, the most common implementation of board-managed governance is the investment committee. An investment committee is a defined group of individuals, typically the senior investment professionals and sometimes including independent members, who are required to approve new investment commitments before the fund can make them. The committee operates under a written mandate that specifies its membership, quorum requirements, voting thresholds, recusal procedures for conflicted members, documentation requirements, and the categories of decision that require committee approval versus those that can be approved by individual executives.
A well-designed investment committee provides several benefits simultaneously. It ensures that every investment commitment is reviewed by more than one person, which reduces the risk that a single individual’s enthusiasm or relationship with a seller bypasses the disciplined underwriting process the fund documents describe. It creates a documented record of the decision-making process, which is valuable both for internal governance and for responding to LP due diligence questions about how decisions are made. And it provides a natural forum for identifying and managing conflicts, because committee members who have a personal interest in a proposed transaction can be recused before the vote rather than after a problem arises.
| 📌 What Institutional Investors Are Actually Asking When They Ask About Governance The governance questions in an institutional LP’s due diligence questionnaire are not organizational chart exercises. They are risk assessments about four specific concerns that affect the LP’s investment. 1. Key person concentration. If the GP’s investment decisions depend on one or two individuals who are not replaceable without disrupting the fund’s operations, the LP is exposed to significant continuity risk. A governance structure that can demonstrate a formal process for decision-making, a succession framework, and documented investment criteria that are not entirely dependent on any single person’s judgment reduces that concern. 2. Conflict management. Every real estate fund manager faces potential conflicts: transactions with affiliates, allocation decisions across co-existing vehicles, valuation decisions that affect fee calculations, and follow-on investment decisions that require allocating scarce capital. Institutional LPs want to know that conflicts are identified through a defined process and resolved through a documented mechanism rather than through the GP’s unilateral discretion. 3. Valuation discipline. AIMA’s analysis confirms that comprehensive and well-documented valuation policies and procedures send a strong signal to investors that a manager does not operate in a vacuum but rather uses both internal and external resources to reach fair value determinations. A board or advisory committee that actively engages with the valuation process provides additional reassurance that valuations are approached consistently. 4. Succession capability. Preqin’s 2024 LP survey found that 78% of institutional investors cited transparency and reporting as very important or critical in successor fund decisions. A governance structure that extends beyond the founding principals, with defined processes for admitting and developing next-generation leaders and a clear framework for succession, is a governance structure that can support a multi-vintage institutional capital raising program. |
The Hybrid Approach: Where Most Real Estate Fund Sponsors Actually Land
Most real estate fund sponsors who think carefully about GP governance do not choose between a pure manager-managed model and a fully institutionalized board-managed model. They design a hybrid that preserves execution speed for ordinary operational decisions while imposing formal oversight on the categories of decision where the stakes are highest and the conflict risk is greatest.
A typical hybrid structure vests day-to-day management authority in designated managers who can act quickly on operational matters: approving routine expenditures, engaging service providers, executing ordinary portfolio management decisions, and managing the administrative operations of the fund. New investment commitments above a specified size, transactions with affiliated parties, key personnel changes, fund extensions, and valuation exceptions are reserved for committee approval. The committee operates under a written mandate with defined membership, quorum rules, and voting thresholds.
That division of authority, operational efficiency for ordinary matters and formal oversight for material ones, is the governance architecture that answers the institutional LP’s due diligence questions without creating the bureaucratic overhead that would make a two-person emerging manager’s fund operationally unworkable. The governing agreement specifies which category each type of decision falls into, what approval is required in each category, and how the two levels of authority interact when a decision spans both.
The hybrid model also creates a natural transition path. A sponsor who starts with a manager-managed GP for a first or second fund can add committee structures incrementally as the platform grows, as the investor base becomes more institutional, and as the team expands to include principals whose voices belong in the governance process. That transition does not require restructuring the GP entity. It requires amending the governing agreement to add the committee mandate, define its membership, and specify the reserved matters that require committee approval.
How Governance Structure Connects to Economics and Incentive Design
The governance structure of the GP entity is not separate from the economic structure. The people who have authority to approve investments, determine bad leaver status, authorize economic reallocations, and supervise conflict management are the same people who have carry allocations, vesting leverage, and removal power. Those two sets of authority, governance and compensation, need to be designed together rather than in separate documents that happen to coexist.
A manager-managed GP where the single managing member controls both investment authority and the internal carry plan is a structure where the economic interests of the sole decision-maker and the governance decisions that manager makes are perfectly aligned in one direction: toward the managing member’s own benefit. That concentration may be entirely appropriate for a founder-led fund where the managing member also bears the most risk and creates the most value. It becomes problematic when the managing member’s carry interests begin to diverge from the interests of other carry participants or of the LP investors.
A board-managed or investment-committee-governed GP, by contrast, creates a structure where the same decision that affects the manager’s economic outcome must also survive review by a defined group of other principals or independent members. That review does not guarantee perfect alignment, but it does create an institutional check on decisions that might otherwise be made entirely in the manager’s personal economic interest.
ILPA Principles 3.0 place alignment, governance, and transparency at the center of the effective GP-LP relationship as three interconnected pillars rather than three separate concerns. That framing reflects the reality that governance and alignment cannot be separated: the governance structure is one of the primary mechanisms through which the alignment of interests that the LPA describes either actually exists in practice or does not.
Integration With the LPA: Where Internal and External Governance Must Align
One of the most common governance design failures in real estate fund structures is treating the fund’s LPA and the GP’s operating agreement as documents that occupy separate worlds. They do not. The LPA defines what authority the GP entity has at the fund level: the power to make investment decisions, the obligation to manage the fund in accordance with the investment guidelines, the key person provisions that suspend investment activity or trigger investor rights when defined individuals are no longer actively managing the fund, and the conflict management procedures that the GP is required to follow. The GP operating agreement defines who inside the GP entity can exercise each of those powers and under what internal approval standard.
When those two documents are not aligned, the result is a governance gap. A key person provision in the LPA that identifies two founding principals by name but a GP operating agreement that gives management authority to a single managing member creates a question about who actually controls the fund when one of the named key persons is unavailable. An LPA that requires LPAC approval for affiliated transactions but a GP operating agreement that gives the managing member unrestricted authority to approve transactions on the fund’s behalf creates an internal-external inconsistency that will surface in the worst possible context.
The integration review should address at minimum: who in the GP entity can bind the GP to fund-level commitments; what internal approval is required before the GP takes actions that the LPA subjects to LPAC review or LP consent; how the GP operating agreement’s authority provisions interact with the fund’s key person definitions; and what happens to the GP’s internal authority structure if a key person event is triggered at the fund level. Those questions require coordinated drafting across both documents, not sequential drafting where one is completed and then the other is drafted in the hope that they will align.
| ⚠️ The Five Governance Provisions Most Commonly Absent From GP Operating Agreements 1. Deadlock resolution. A manager-managed GP with two co-equal managing members has a governance crisis the moment the two managers disagree on a material decision and neither can act without the other’s consent. The operating agreement should specify a deadlock resolution mechanism: escalation to a third party, mandatory mediation, arbitration, or a defined tiebreaker authority. 2. Conflict identification and management. The operating agreement should define what constitutes a conflict of interest, who is responsible for identifying conflicts, what disclosure process applies, and what approval standard governs conflicted transactions. A managing member who is also evaluating an affiliated transaction should not be the person who approves that transaction. 3. Emergency succession. What happens if the managing member becomes incapacitated, dies, or is suddenly unable to act? The operating agreement should name a successor or an interim authority, define the approval process for formalizing a longer-term succession, and address how fund operations continue during the succession period. 4. Removal mechanics. Who can remove a manager from the GP, under what conditions, and through what process? If the GP operating agreement does not specify a removal mechanism, the default rules under Delaware law apply, which may not produce the result the parties intended. The operating agreement should address removal for cause, removal without cause, and the economic consequences of each. 5. Committee mandate alignment with the LPA. If the GP operating agreement creates an investment committee, the committee’s mandate, membership, and authority should be cross-referenced to the LPA’s provisions about who makes investment decisions, what the key person definitions cover, and what conflict management obligations the fund documents impose on the GP. |
Gvernance Is a Commercial Decision, Not an Administrative One
The choice of governance structure for a real estate fund’s GP entity is a commercial decision with legal, operational, and investor relations consequences. It determines whether the platform can act quickly enough in a competitive investment environment. It determines whether the internal oversight mechanisms are robust enough to manage conflicts, valuations, and succession events without disrupting the fund’s operations or its relationship with investors. And it determines whether the fund can answer the institutional LP’s due diligence questions about decision-making processes, conflict management, and succession planning in a way that gives those investors confidence in committing capital across multiple vintage years.
The manager-managed model is not a lesser governance structure. It is the right governance structure for platforms where concentrated authority reflects concentrated expertise and responsibility, where the team size makes formal committee processes impractical, and where the investor base values execution speed and founder accountability over institutional process. The board-managed or hybrid model is the right governance structure for platforms that have grown beyond the point where informal authority is adequate, where the investor base expects documented oversight, and where the platform’s durability across personnel changes and fund vintages depends on governance systems that extend beyond any individual founder.
Most sponsors eventually migrate from the first model toward the second as their platforms mature. Designing the governing agreement to accommodate that migration, rather than requiring a full restructuring when the platform is ready for institutional capital, is itself a form of governance discipline. The sponsor who builds a governing agreement with clear authority provisions, defined conflict procedures, workable succession mechanics, and alignment with the LPA’s key person and approval provisions has built a document that serves the platform across the full arc of its development, not just for the current fundraise.