Key-Person Provision

Private fund investments are fundamentally bets on people. The track record that persuaded a family to commit capital was built by specific individuals, and the key-person provision is the structural acknowledgment of that reality. Named key persons — usually two to four senior partners — must spend a defined minimum of their professional time on the fund. If they depart, die, become incapacitated, or fall below that threshold, a key-person event is triggered.

The consequences vary by LPA. A typical outcome is an automatic suspension of the fund's ability to make new investments until limited partners vote to lift the suspension or elect a wind-down. Some agreements give LPs the right to remove the general partner with sufficient votes; others simply freeze the fund in place while succession is arranged. The provision rarely forces an immediate return of capital, which is a common misconception.

Families evaluating a fund should read key-person provisions carefully and consider the depth of the investment team below the named individuals. A hypothetical scenario: a family commits to a small growth equity fund anchored around two founders; one departs eighteen months in for a competitor. Without a clear key-person trigger and a responsive LP base, the family may find their capital locked with a diminished team for the remainder of a ten-year fund life. See manager selection considerations for related due diligence questions.