Key Person Clause
A Key Person Clause is a fund governance provision that restricts or pauses new investments if specified key individuals stop devoting sufficient time to the fund. Allocators evaluate key person clauses through who is designated, what constitutes a “trigger event,” whether investment activity is suspended or limited, cure mechanisms, replacement approvals, and how the clause protects LPs against team instability and platform drift.
In private markets, team stability is a primary determinant of return outcomes. Key person clauses exist because attribution and process are often concentrated in a small number of individuals. Institutionally, the clause is not a template checkbox—it is a core protection against silent drift in decision-making.
From an allocator perspective, key person clauses affect:
- governance protection during team disruptions,
- continuity of underwriting and investment process,
- LP approval rights, and
- risk of “platform drift” after fundraising.
How allocators define key person risk drivers
Allocators segment key person clauses by:
- Who is covered: named individuals vs broader committee
- Trigger definition: departure, reduced time commitment, role changes, long-term leave
- Consequence: full investment suspension vs limited investments vs LP advisory consent
- Cure period: time allowed to resolve the event
- Replacement process: LP approval thresholds and documentation requirements
- Interaction with succession planning: whether clause aligns with realistic leadership bench
- Evidence phrases: “key person event,” “suspension of the investment period,” “LP consent,” “time commitment”
Allocator framing:
“Does this key person clause meaningfully protect us against decision drift—or is it written so narrowly that it rarely triggers when it should?”
Where key person clauses matter most
- Fund I / emerging managers where decision-making is concentrated
- sector specialists with limited bench depth
- multi-strategy firms where reallocation of attention can erode focus
How key person events impact outcomes
- can pause investing to prevent quality degradation during disruption
- can signal deeper firm instability that affects portfolio support and follow-ons
- can create negotiation leverage for LPs if poorly handled by the GP
- can expose weak succession planning if triggers are frequent
How allocators evaluate clause strength
Conviction increases when:
- key persons reflect true decision ownership (not symbolic names)
- triggers are defined realistically (time commitment matters)
- consequences are meaningful (pause or LP consent required)
- cure and replacement procedures are clear and LP-protective
- the GP can demonstrate bench depth and succession planning
What slows allocator decision-making
- clauses that require “termination” only (too extreme to ever trigger)
- vague definitions of time commitment and role changes
- overly permissive cure periods that allow drift
- weak LP consent rights or unclear approval thresholds
Common misconceptions
- “Key person clauses are standard so they don’t matter” → small drafting differences drive real protection.
- “It only matters if someone leaves” → reduced time commitment is often the real risk.
- “Bench depth makes clauses unnecessary” → clauses protect against silent reallocation of attention.
Key allocator questions
- Who are the true decision owners and are they covered?
- What exactly triggers a key person event, including time commitment reductions?
- What happens operationally—do investments pause, and can GP continue?
- What is the cure period and what does “cure” mean in practice?
- What is the LP approval process for replacements?
Key Takeaways
- Key person clauses are governance protections against decision drift
- Trigger definitions and consequences determine real-world strength
- Bench depth + clear replacement mechanisms increase institutional comfort