Key Person Clause
Definition
A key person clause, also called a key man provision, is the term in a private fund's limited partnership agreement that protects investors against losing the people they backed. It names specific individuals at the manager, usually the founding partners or the strategy's senior investors, and sets a trigger: if a stated number of them cease to devote substantially all (or a stated share) of their business time to the fund, whether through departure, death, disability or reassignment to other funds, a key person event occurs. The standard consequence is an automatic suspension of the fund's investment period, so the manager can make no new investments and often cannot call capital for them, until either the limited partners vote to lift the suspension (typically a majority or two-thirds in interest) or the manager appoints replacements the investors approve. If neither happens within a cure period, commonly 90 to 180 days, the investment period ends permanently and the fund becomes a harvesting vehicle.
Why it matters
A ten-year commitment to a private fund is a commitment to specific people, and the key person clause is the only term that ties the two together. Its strength varies enormously: a clause naming eight partners with a three-departure trigger and a majority-vote cure protects very little, while one naming two founders with a one-departure trigger and a two-thirds vote to resume protects a great deal. For individuals investing through platforms the clause matters twice, because the underlying fund's key people and the platform's own key people are both risks, and only the first is usually documented.
Common misconceptions
- •A key person event does not end the fund or return capital. It suspends new investments; the existing portfolio stays in the fund for its full term and fees generally continue.
- •Departure is not the only trigger. Death, disability, criminal conviction, and reassignment to other strategies typically count; a founder who stays at the firm but moves to launch a different fund can trigger the clause.
- •The clause does not cover the platform. An access fund's documents name the master fund's key people, if they name anyone; a platform that loses its own founder or sells itself is a separate risk with no equivalent protection.
- •A key person event is not necessarily disclosed to individual investors promptly. The master fund notifies its limited partners, which for an access-fund investor is the feeder; whether and when the feeder passes the notice on depends on its own documents.
Technical details
Anatomy of the clause
Named persons: a list of individuals, sometimes with substitution rights for the manager subject to investor approval.
Time commitment: substantially all business time (strong) versus a majority or substantial portion (weaker), applied to the fund and its sister funds in the same strategy.
Trigger: any one of the named persons (strong), or a stated number or fraction (any two of four; a majority of the named persons), ceasing to meet the commitment.
Consequence: automatic suspension of the investment period, or a suspension that investors must vote to impose (weaker).
Cure: a period of 90 to 180 days in which the manager may propose replacements; investors lift the suspension by a majority or supermajority in interest.
Failure to cure: permanent end of the investment period; sometimes a right for investors to remove the general partner without cause on a lower vote.
What investors can and cannot do during suspension
Can: continue to fund follow-on investments in existing portfolio companies up to a reserve, pay expenses and fees, and vote to resume.
Cannot (in most documents): be called for new platform investments; the manager cannot sign new deals.
Fees: many LPAs move the management fee to the post-investment-period basis during suspension; some keep it unchanged, which is worth noticing because it removes the manager's incentive to resolve the event.
Related clauses: the no-fault divorce (investors end the investment period by supermajority for any reason), for-cause removal of the GP, and the LPAC's role in approving replacements.
Reading the clause against the marketing
Compare the named list with the team page and the PPM's biographies: a fund marketed on five partners that names two, or names people not featured in the deck, is telling you who actually matters.
Check the threshold arithmetic: any two of six means the fund can lose one of its three most important people with no consequence.
Check the time standard: a manager running four strategies under a majority-of-time test can move a key person elsewhere without triggering anything.
Check whether an event is disclosed to all investors, and within what period.
Key people in platform vehicles
Access funds and feeders: the master fund's clause governs; the feeder votes. Ask the platform how it decides and whether it commits to notify investors.
Regulation A and Reg CF issuers: there is no key person clause. The offering circular's risk factors describe dependence on management, and a Form 1-U or Form C amendment discloses departures after the fact; AltStreet's filing events feed typed officer departures for Reg A issuers.
Series LLC and single-asset SPVs: management is usually the sponsor entity itself, and the operating agreement rarely names individuals.
Platforms themselves: no equivalent. A platform's own founder risk shows up, if anywhere, in its parent's Form D history and in the platform review.
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- What is a key person clause in a private equity fund?
- A provision that suspends new investing if the named senior people leave or stop working on the fund. Investors commit to a manager because of specific individuals; the clause means that if, say, two of the three named partners depart, the fund cannot keep drawing their capital for new deals until the investors agree to continue or the manager finds acceptable replacements.
- Who is named as a key person?
- The founders and the senior investment professionals whose track record the fund was raised on, typically two to six people. Larger and older firms name a broader group with a lower threshold (for example, any three of eight), which makes the clause harder to trigger; first-time funds name the one or two people the fund depends on. The list is negotiated and visible in the LPA, and it is worth comparing against the team the marketing materials feature.
- What does substantially all of their business time mean?
- The standard formulation. It requires the key person to spend nearly all working time on the fund and its predecessor and successor funds within the same strategy, which allows them to run the firm's other funds but not to take an outside role. Weaker documents say a substantial portion or a majority, which lets a key person split time across strategies without triggering the clause.
- What happens during a key person suspension?
- The fund stops making new investments and usually stops calling capital for them; it can still fund follow-on investments in existing companies, pay expenses and manage the portfolio. Management fees usually continue, sometimes at the post-investment-period rate. The manager proposes replacements or the investors vote; if the cure period passes without a resolution, the investment period ends and the fund winds down its portfolio over its remaining term.
- Does the clause protect me if the manager performs badly?
- No. It responds to people leaving, not to results. Performance-related protections are separate: a no-fault termination right (investors can end the investment period by a supermajority vote for any reason), a for-cause removal right (fraud, material breach, bad-actor events), and in some documents a suspension if a stated share of the portfolio is written down. A fund can lose most of its value with every key person still in place.
- Why should an access-fund investor care about a clause they cannot vote on?
- Because the feeder holds the vote, not the individual. When a key person event occurs at the master fund, the platform vehicle decides whether to lift the suspension, usually by polling its investors or by its own judgment under the feeder's documents. An individual should know who the key people are, how the feeder will vote, and whether the feeder's documents even oblige it to tell investors that an event occurred.