Key Person Clause
A key person clause is a fund term that restricts activity or triggers governance actions if designated individuals leave or reduce involvement.
Definition
Definition Key person clauses define what happens if specific named individuals (often founders or lead investors) are no longer substantially involved in the fund. Remedies may include suspension of new investments, requirement for LPAC approval to restart investing, or other governance steps. The clause exists to protect LPs from investing in a fund that no longer has the team they underwrote. Allocator Context Institutional allocators view key person clauses as core governance hygiene, especially for concentrated teams and emerging managers. The clause is also a proxy for internal resilience: the more “single-threaded” the platform, the more important the clause becomes. Decision Authority Key person events often require LPAC involvement and may escalate to committees on the LP side. Allocators may also reassess exposure, re-up plans, and monitoring intensity after a key person event. Why It Matters for Fundraising Strong key person governance signals alignment and maturity. Managers should define responsibilities clearly, avoid overly narrow designations that create instability, and be explicit about succession planning. Key Takeaways Protects LPs from team dependency risk Common governance expectation for institutions Triggers LPAC involvement and investment suspensions Signals platform resilience and discipline