For many it is a distant memory when the Alternative Investment Fund Managers Directive (“AIFMD”) was introduced in Europe and introduced new standards in areas such as risk management and oversight. It also introduced the fund depositary to oversee the operation of many private funds that were not used to such a concept.

Capacity, independence and competence of directors seem to be prominent themes with investors, and managers are under regulatory pressure to raise their own internal governance standards. More emphasis is now given to the environmental and social consequences of investments and how managers run their operations. Against that background, we look at key-person clauses and removal of the manager in closed-ended funds.

Key-Person Clause (in closed-ended funds): If the key-person provision is triggered there is often an automatic suspension of the investment period. The vast majority of the Sample Funds had some form of automatic suspension. How management activity is reinstated varies from a vote of investors holding 75% of commitments, through to fixed periods (e.g. 180 days) for automatic restoration of the investment period, unless there is a vote against restoration.

Removal of GP (in closed-ended funds): The fund provisions allowing investors to remove the GP/manager are frequently negotiated but rarely used. The majority of funds surveyed included a right for investors to remove the GP/manager for cause, with a simple majority investor vote being the market standard. While the right for investors to force a no fault-removal was only seen in around 50% of funds, where it was included a 75% investor vote threshold was most common.

Cause removal of GP / manager in Sample Funds

No-cause removal of GP / manager in Sample Funds