Key Person Clause
A key person clause is a fund term that restricts new investments if specified key individuals are no longer actively involved.
Allocator relevance: A primary LP protection against team fragility—links capital deployment rights to real decision-maker continuity.
Expanded Definition
Key person clauses define who is essential to the strategy (e.g., CIO/partners) and what happens if they depart, reduce time commitment, or become incapacitated. Often, the clause triggers a “key person event” that pauses new investments until LPs approve a remedy. The effectiveness depends on the specificity of definitions and enforcement mechanics.
Allocators view key person protection as especially important in emerging managers and concentrated teams.
How It Works in Practice
Fund documents define key persons, what constitutes a trigger, and the process for resuming investing (LP vote thresholds, replacement plans). Some managers negotiate flexibility; allocators negotiate clarity.
Decision Authority and Governance
LP governance (often through LPAC or broader LP vote) determines how key person events are handled. Strong clauses reduce the risk that a fund continues investing under materially different leadership.
Common Misconceptions
- Key person clauses cover all turnover risk.
- A clause exists, so it must be strong.
- Key person events are rare and not worth diligence time.
Key Takeaways
- Clause strength depends on definitions and enforcement.
- It’s a core alignment and risk-control term.
- Evaluate alongside team turnover and succession planning.