Key-Person Provisions
Definition
A key-person provision is a clause in a limited partnership agreement (LPA) that identifies specific individuals — the “key persons” — whose involvement in the fund is considered essential. If a defined number of those individuals depart, reduce their commitment below a specified threshold, or are otherwise unavailable, a key-person event is triggered and LPs gain defined contractual rights.
Key-person provisions exist because the performance of a private market fund is closely tied to specific individuals: the partners who source deals, make investment decisions, and manage portfolio relationships. Unlike a listed investment manager, a PE or hedge fund cannot easily substitute equivalent personnel from a wider team without materially changing what investors committed to.
Who Counts as a Key Person
Key persons are typically:
- Named fund managers or portfolio managers with primary investment decision authority
- Named partners with primary responsibility for deal origination, evaluation, or portfolio oversight
- Occasionally, sector specialists or senior professionals designated as critical to the strategy
The specific individuals, the threshold number required to remain active, and the minimum time commitment owed to the fund are negotiated before fund close and set out in the LPA. A common formulation reads: “at least [X] of the following [Y] named individuals must devote [Z] per cent of their professional time to the Fund.”
Note: Key-person definitions vary significantly by fund type, strategy, and GP. The individuals named, the threshold test, and the consequences of a breach are all negotiated. No single formulation should be assumed to be standard.
Trigger Events
A key-person event occurs when the LPA threshold test is no longer met. Typical trigger events include:
- Death or permanent incapacity of a named key person
- Resignation or departure from the GP or its management company
- Reduction of dedicated time below the contractual threshold
- Criminal conviction, regulatory sanction, or other disqualifying event affecting the individual
Triggers are generally mechanical: either the threshold is met or it is not. Broader subjective assessments (e.g., “is the fund still well managed?”) are not typically the contractual test, though they inform LP decision-making in practice.
LP Rights Upon a Key-Person Event
The rights triggered depend on what was negotiated at fund formation. The most common outcomes are:
1. Investment period suspension (“pause rights”) The most common outcome. The GP’s authority to make new investments is automatically suspended pending LP Advisory Committee (LPAC) consent to resume. The GP may continue to manage existing portfolio companies but cannot deploy new capital. This gives LPs time to assess the impact of the departure and engage with the GP on remediation.
2. No-fault removal of the GP A more extreme right available in some LPAs, typically requiring a supermajority vote by LP capital (e.g., 75% or more of committed capital). LPs may remove the GP and appoint a replacement or wind down the fund — without needing to demonstrate wrongdoing. This is called a “no-fault divorce.” The GP is usually entitled to compensation for accrued but unrealised carried interest at the time of removal.
Jurisdiction note: No-fault removal rights are more common in US-domiciled funds. Their availability and precise mechanics vary across jurisdictions and are subject to the governing law of the LPA.
3. Individual LP opt-out rights Some LPs negotiate the right to decline to participate in new investments during a key-person period, rather than triggering a fund-wide suspension. This is less common and typically available only to anchor or larger LPs.
Role of the LPAC
The LP Advisory Committee plays a central role when a key-person event occurs:
- The GP is generally required to notify the LPAC promptly upon becoming aware of a potential key-person event
- The LPAC reviews the GP’s proposed remediation plan (e.g., a promoted replacement, an external hire, or a restructured team)
- The LPAC grants or withholds consent to resume the investment period
- LPAC membership typically includes larger and institutional LPs who have negotiated board seats
Smaller LPs not represented on the LPAC have limited direct influence in these situations; their protection is primarily through the automatic suspension mechanism, not through a direct vote.
See LP Roles for the LPAC’s broader governance function.
Key-Person Provisions in Due Diligence
When assessing a fund, LPs typically review:
- Which individuals are named and whether they reflect the actual decision-makers (not just the most senior)
- Whether the time commitment threshold is substantive (e.g., “substantially all professional time” is stronger than “50% of professional time”)
- Whether succession provisions exist: what happens if a key person is replaced versus simply departing
- The firm’s organisational depth — how much of the team’s capability is concentrated in the named key persons
- Whether the GP carries key-person insurance (life and disability cover structured around the fund’s interests)
Weak, absent, or poorly scoped key-person provisions are flagged as a governance risk in AIMA due diligence questionnaire assessments and in LP reviews applying ILPA Principles.
Related Files
Source Anchors
- ILPA Principles — alignment-of-interest guidance covering key-person provisions, GP commitment requirements, and LPAC governance rights
- AIMA DDQs — due diligence questionnaire framework covering key-person risk as a governance and operational assessment area
Manual Review Notes
- Key-person provision terms are heavily negotiated; no single threshold, named-individual count, or consequence formulation should be presented as market standard
- “No-fault divorce” mechanics vary by jurisdiction and are subject to governing law — present as a concept, not as universally available
- LPAC composition and representation are themselves negotiated; not all LPs in a fund have LPAC representation, which affects the practical operation of key-person event governance