Key Person Clause in Emerging Funds

A key person clause in an emerging fund's limited partnership agreement names the individuals whose continued involvement LPs underwrote, and it spells out what happens if they leave, die, become disabled, or stop dedicating the agreed time. When a key person event trips, most institutional LPAs suspend new investments until LPs reinstate the investment period or accept a replacement. First-time GPs feel this clause harder than multi-fund platforms because the whole franchise often is two or three named people.

This page is drafting and diligence literacy for emerging managers and their LPs. It is not legal advice, not investment advice, and not a prediction of returns. The LPA controls. Confirm language with counsel. Fund product: /fund. Emerging-manager context: /emerging-managers. Fees: /fees.

What the clause is (and is not)

The key person clause is not a vanity list of partners on the website. It is a governance switch:

• Names the people whose time and judgment LPs bought

• Defines the event (departure, death, disability, time-commitment breach, sometimes misconduct)

• Triggers a consequence — usually automatic suspension of the investment period for new deals

• Sets notice, LPAC consultation, cure / replacement, and the LP vote to reinstate or wind toward an orderly stop on new deployment

It is not automatic GP removal by itself (removal and no-fault divorce are separate LPA sections). It is not a performance warranty. It does not replace fiduciary duties written elsewhere in the LPA.

Industry framing for LPs appears in ILPA Principles 3.0 (2019). ILPA emphasizes naming the people who will determine investment outcomes (not merely founders by title), timely notice, LPAC discussion of ramifications, and a suspension path that does not leave LPs funding a materially different team without a vote. Use ILPA as a benchmark conversation, not as a statute.

Who to name in an emerging fund

Emerging funds usually name two to four investment professionals. Drafting questions:

1. Who actually decides yes/no on deals today?

2. Whose calendar would break sourcing if they left?

3. Who sits on the investment committee with a real veto?

4. Who will still be full-time on this fund if a successor fund raises next year?

Avoid naming inactive founders for optics. Avoid naming so many people that no realistic departure combination trips the clause. Avoid naming only titles ("the Managing Partner") without names — titles change; LPs underwrote people.

Time-commitment language matters. LP-favorable drafts require key persons to devote substantially all business time to the fund and related vehicles, or set an explicit percentage threshold. Soft phrases like "primary focus" invite debate when a partner starts a second strategy. Emerging managers who also run active deal SPVs should disclose how SPV time counts toward the commitment — product boundary: SPV admin vs Fund seat on /fees.

What typically triggers a key person event

Common trigger families (all LPA-defined):

• Death or permanent disability of a named person

• Voluntary resignation or termination of employment / partnership status

• Failure to meet the time-commitment test for a stated period

• Sometimes: indictment, fraud finding, or cause-style misconduct tied to the named person

Watch for gaps. A partner who is reassigned off the investment committee but still "employed" may not trip a clause that only counts formal resignation. ILPA-style diligence asks whether the trigger matches how the firm actually works.

Suspension, notice, and the LPAC

LP-favorable market practice (as described in ILPA Principles 3.0 and common LPA patterns):

1. Automatic suspension of the investment period for new investments when the event occurs.

2. Immediate notice to LPs (not only when convenient).

3. LPAC consultation on ramifications, portfolio status, and proposed resolution (replacement candidate, interim coverage, timeline).

4. Cure window — often measured in months — during which the GP proposes a replacement or remediation while new deployment stays paused (follow your LPA; some GP drafts try to keep deploying unless LPs organize a stop).

5. LP vote to reinstate the investment period (threshold varies; ILPA discusses supermajority concepts for serious governance actions). Interests held by the GP and affiliates are often excluded from the vote.

During suspension, the GP typically continues to manage existing portfolio companies. The fight is about new checks, not abandoning the book overnight. Binding deals already signed may have special treatment — counsel drafts that carve-out carefully.

LPAC role overview: Limited Partner Advisory Committee (LPAC).

Emerging-manager pressure points

First-time funds hit four recurring diligence fights:

1. Concentration risk. If two partners are the firm, LPs will push hard triggers and short cure windows. That is rational underwriting, not hostility.

2. SPV stacking vs fund. Sponsors who still close deal SPVs while raising Fund I must explain time allocation. Published Allocations admin (fetched 8 Sep 2026): Standard SPV $9,950 one-time; Premium SPV $19,500 one-time; Fund $19,500/year; 0% platform carry (/fees). Ops choice context: emerging managers 101.

3. Successor-fund gravity. Key persons on Fund I who start marketing Fund II need clear time-devotion math in both LPAs.

4. Replacement bench. Name interim coverage and a process for approving a substitute key person. A blank "we'll find someone" is a diligence red flag.

Side letters that weaken the clause for one LP (or expand cure rights for the GP) create MFN and governance noise — see MFN clause in side letters.

How the clause interacts with other LPA power tools

Read key person next to:

• For-cause removal and no-fault divorce — different votes, different consequences

• Clawback / interim clawback testing — some LP-friendly drafts run an interim clawback test on a key person event (economics hygiene, not a return promise)

• Excuse / exclusion — unrelated mechanically; do not confuse personnel suspension with deal-level opt-outs (excuse and exclude rights)

• GP commitment — skin-in-the-game stays relevant when the team changes

None of these sections is a substitute for the others. Diligence them as a set.

Practical drafting checklist for emerging GPs

1. Name the real decision-makers — usually 2–4 people.

2. Define triggers that match how your firm works (including time commitment).

3. Prefer automatic suspension of new investments on a trip.

4. Write notice timing and LPAC discussion into the LPA.

5. Pre-agree a replacement approval path and interim coverage.

6. Exclude GP/affiliate interests from reinstatement votes if that is the bargain.

7. Align PPM biographies with the named list.

8. Quote only published platform fees when LPs ask about admin cost (/fees; Fund $19,500/year, 0% platform carry, fetched 8 Sep 2026).

What this page is not

• Not legal advice on fiduciary duty waivers or LPA enforceability.

• Not a claim that ILPA Principles are law.

• Not investment advice or a performance track-record analysis.

• Not a competitor comparison.

• Not a recommendation to waive key person protections.

FAQ

What is a key person clause in a private fund?

It is the LPA section that names essential investment professionals and sets what happens — usually investment-period suspension for new deals — if they leave, die, become disabled, or miss the time-commitment test.

Do emerging funds need a harder key person clause than large platforms?

Often yes in diligence. Emerging franchises are concentrated in a few people, so LPs push clearer triggers, notice, and reinstatement votes. Large platforms may have deeper benches; they still name key persons.

Does a key person event remove the GP automatically?

Usually no. Removal and no-fault provisions are separate. Key person typically pauses new deployment and forces a governance conversation; it does not by itself fire the manager.

How do SPVs fit if key persons also run deal vehicles?

Disclose time allocation. SPV admin and Fund seats are different products (/spv, /fund). Published fees (fetched 8 Sep 2026): Standard $9,950; Premium $19,500; Fund $19,500/year; 0% platform carry.

Is this legal advice?

No. Key person outcomes depend on your LPA, side letters, and facts. Confirm with qualified counsel.