Glossary · Governance & LP rights

Key Person Clause

Also called: key man clause · key person provision

A key person clause is a limited partnership agreement provision that names individuals the fund depends on and, if they leave or stop devoting the required time, triggers protections such as suspending new investment until LPs decide how to proceed.

Publisher: Altss LLCPublished 2025-12-31Content modified 2026-10-01

ALTSS-LPA-003

LPs commit to a fund largely because of the people running it. The key person clause turns that reliance into a contract term: if the named people go, or stop spending enough time on the fund, the fund stops making new investments until LPs agree to continue. It does not stop the fund managing what it already owns.

Who and what triggers it

The LPA names the key persons, usually founders and senior investment partners, sometimes in tiers. A key person event occurs when a stated number of them (for example, any one of two founders, or a set number out of a larger group) die, become disabled, leave, are removed, or cease to devote the time the LPA requires. Time commitments are usually expressed as "substantially all" business time for the most senior individuals and a lesser commitment for others, often set out in a separate time and attention covenant, which states how much time each individual must devote while the key person clause sets the consequences of a shortfall. The Institutional Limited Partners Association (ILPA) asks in its Principles 3.0 that key persons devote substantially all their business time to the fund, its predecessors and successors within a defined strategy, and its parallel vehicles. Some LPAs also count a key person's move to a successor fund. Objective, measurable triggers are easier to enforce than tests such as "materially reduced involvement".

What happens next

The GP must notify LPs promptly. In the LP-protective form, the investment period is suspended automatically: no new investments, while follow-ons, binding commitments made before the event, fees and expenses continue. The suspension ends if LPs (or, in some funds, the LPAC) approve replacement key persons or a continuation plan by the vote the LPA specifies; if they do not act within the stated period, the investment period terminates permanently. In the less protective form, nothing happens automatically and LPs must vote to suspend. ILPA Principles 3.0 favour the automatic form, with the suspension becoming permanent unless a defined supermajority of LPs votes to reinstate: within 180 days in the key person section (p. 19) and within 90 days in the fund governance section (p. 23). A suspension or termination may also trigger the management fee step-down.

Points LPs negotiate

How many departures trigger the event; whether time commitments are measured and reported; how quickly the GP must give notice; whether the GP can keep investing through other vehicles during a suspension; who approves a cure (LPs or the LPAC); and whether replacement by the GP alone counts as a cure, which LPs generally resist.