Pari passu meaning in relation to the GP/LP structure
Can somebody help explain what it means when the GP invests passu with the investors?  I’ve done some reading on it but perhaps somebody here can simplify it in a nice way.  
Thanks.
[{"id": "imawgu7", "text": "Pro Rata - distributions are proportionate. So if GP has a  10% stake and LP is 90%, distributions are the same.\n\nPari Passu - the *timing* or *seniority* is the same. Sometimes, especially in pref equity deals, all distributions go to the LP first (until a certain return is reached), then the GP\u2026 that type of pref equity structure would not be Pari Passu.", "replies": [{"id": "imaz2iq", "text": "So investing Pari Passu is advantageous to the GP?  Do they usually give something in order to do that?  Like maybe take less on the splits?", "replies": [{"id": "imb0fcr", "text": "Usually PP is more favorable to LPs. Depends on fees.", "replies": [], "depth": 3}, {"id": "imb89qu", "text": "In a vacuum, Pari Passu is better for a GP because the distributions don\u2019t have to go to the LP first.\n\nHowever, you need to factor in the pref return hurdle, fees, etc. to really quantify if it\u2019s worth it. Typically Pari Passu equity is more expensive.", "replies": [], "depth": 3}, {"id": "imbfpee", "text": "I wouldn\u2019t say it\u2019s beneficial to the GP. If the deal is structured with waterfall returns, the GP starts making their returns worthwhile once the pref is hit and beyond. For example, a GP may offer an LP a 8% pref where returns are parri passu, or proportionate to their equity invested. However, if the IRR surpasses the pref, the GP will want to be compensated. So, a GP\u2019s returns could go from 10% to 20% until another IRR hurdle is hit. Once that hurdle is passed, then returns can go to 40% from 20%. You\u2019ll see these metrics hit usually upon a sale of the asset. \n\nThese kinds of deals differ wildly! It\u2019s an art", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "imb01jz", "text": "It\u2019s all deal specific. Often in place where the GP\u2019s contributions are not very high, but they want to show greater alignment of interest", "replies": [], "depth": 1}, {"id": "imb1l4a", "text": "They aren\u2019t \u201cinvesting\u201d pari passu the distributions are pari passu. Simply put pari passu means equal parts so pp distributions means distributions are done based on the LP/GP equity contribution. In most deals with an LP/GP there is a promote which basically means the distributions are based on returns. A promote with a preferred return of 9% means that a certain split will exist until a 9% return is reached at which point a new split will be in place until the next pref is hit. In a PP arrangement distributions are based purely on equity share. Generally speaking pp benefits the LP because they typically invest the bulk of the equity in a deal. It\u2019s rare to see a straight up pp deal with an LP/GP unless the GP is charging large fees or they have another incentive to run the deal.", "replies": [{"id": "imdyq2r", "text": "&gt; pp distributions means distributions are done based on the LP/GP equity contribution. \n\nI think you are confusing \u201cpro rata\u201d with \u201cpari passu\u201d. \nYou can have pari passu distributions that aren\u2019t the same as the LP/GP equity contribution. This is typical once you get into higher tiers of the \u201cwaterfall\u201d. Pari Passu just means the distributions are made at the same time and same seniority, as opposed to going to the LP first until a certain return is achieved then going to the GP.", "replies": [], "depth": 2}], "depth": 1}, {"id": "imcdp65", "text": "Y\u2019all are making this way too complicated\u2026\n\nPari passu almost always means one of two things: 1) Sharing costs pro rata ie in proportion to partnership interests (eg 90/10), or 2) Sharing of returns up to a preferred return (\u201cpref\u201d)\n\nPromotes kick in after the pref, which give the GP a disproportionate share of returns after the pref/hurdles (in addition the GP\u2019s investment return). Eg GP could get 25% over a 9% pref (which is disproportionate to the GP\u2019s, say, 10% cost sharing ratio).", "replies": [], "depth": 1}]