The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Key Person Provisions

  • From Vol. 8 No.25 (Jun. 25, 2015)

    Dechert Global Alternative Funds Symposium Evaluates Liquid Alternative Funds and Fund Governance Trends

    Since the 2008 market crisis, retail demand for alternative investment strategies has surged.  Consequently, offerings of alternative mutual funds by U.S. hedge fund managers have steadily increased in recent years; however, the alternative mutual fund structure has not proven as popular in Europe or Asia, where retail investors and regulators prefer the UCITS structure.  See “The First Steps to Take When Joining the Rush to Offer Registered Liquid Alternative Funds,” The Hedge Fund Law Report, Vol. 7, No. 42 (Nov. 6, 2014).  In addition, concerns with fund governance issues, such as key person risk and investment strategy drift, have similarly escalated since the crisis.  This article summarizes the discussion of these topics at the recent Dechert Alternative Funds Symposium in New York City.  For additional coverage of the Symposium, see “Dechert Global Alternative Funds Symposium Highlights Trends in European and Global Hedge Fund Marketing,” The Hedge Fund Law Report, Vol. 8, No. 21 (May 28, 2015).

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  • From Vol. 2 No.37 (Sep. 17, 2009)

    Key Person Provisions in Hedge Fund Documents: Structure, Consequences and Demand from Institutional Investors

    Traditionally, the success of a hedge fund manager and its funds under management flows (or fails to flow) directly from the vision, expertise or acumen of one person, or a small group of people.  That person is often, though not invariably, the founder of the manager, and those people are often fellow founding partners, or key hires made subsequent to founding.  In a word, key people are the people that generate revenue, and investors are rightfully concerned about what may happen if key people die, become disabled or cease (voluntarily or involuntarily) to actively participate in the management of the funds in which investors are invested.  To address and mitigate those concerns, key person provisions are often drafted into various fund or manager documents or into side letters; the current trend is toward inclusion of such provisions in fund operating documents, and away from inclusion of such provisions in side letters.  Such provisions take various forms and establish differing mechanics, but generally provide for notification and redemption rights in the event of designated triggering events.  This article explores the substance of key person provisions – how they are drafted and the mechanics they establish; the documents in which they are located; the differing consequences of locating the provisions in different documents; the consequences of triggering such provisions; the demand by institutional investors for such provisions; and the relationship between key person provisions and succession planning.

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