The death, disability or departure of a founder or key employee of a hedge fund manager (succession event) creates a business risk that the manager must proactively address to ensure the long-term viability of the enterprise, to respond to investor concerns and to meet the firm’s regulatory obligations.  A firm must anticipate and address not only personnel considerations, but also the impact of a succession event on ownership, compensation and other legal and operational issues.  This is the second article in a two-part series analyzing key considerations for hedge fund managers aiming to adopt and implement an effective succession plan.  The first article in this series discussed: why succession planning is an imperative for hedge fund managers looking to raise institutional capital and create long-term enterprise value; applicable regulatory requirements; the imperative of commencing succession planning today rather than deferring difficult decisions; examples of prominent hedge fund managers that have implemented succession plans; what types of succession events a succession plan should cover; people decisions, including how to identify roles to be filled and how to identify, incentivize and train successors; and the role of management committees in succession planning.  See “Key Considerations for Hedge Fund Managers in Developing a Succession Plan (Part One of Two),” Hedge Fund Law Report, Vol. 5, No. 7 (Feb. 16, 2012).  This article discusses: potential changes in a firm’s ownership and compensation structure designed to incentivize prospective successors to stay with the firm and to address the economics of departing founders or key employees; how to document a succession plan; how to test a succession plan; and how to communicate information about a succession plan with investors.