SUBJECT:

A Southern California-based Asset Management & Investment firm manages a portfolio of $17 billion.

SITUATION:

The CEO (aka the Key Person) wears many vital hats—CEO, President, Chief Investment Officer, Market Strategist—and oversees all the firm’s U.S. equity and hedge fund strategies.  In the past ten years, the firm’s assets under management have risen from $3.5 billion to 17 billion dollars, thus elevating the overall importance of the critical person’s responsibilities.

ASSESSMENT:

Chief Executive Officers in the hedge fund universe are unique human capital assets. Investors invest in a fund based mainly on performance attributed to the CEO.  In the event of a severe disability, cash would be needed to retain key staff and manage the winding down of the fund if a permanent disability were to strike.  With the obligation of succession planning resting on the shoulders of the Board of Directors, the Board saw a need to initiate additional coverage if the CEO was no longer able to perform his duties.  The Board’s directive stipulated that an accelerated divestiture clause be built into their investment agreements, which would allow investors to accelerate the rate at which investors can pull their funds should the fund manager become incapacitated.

SOLUTION:

A plan was designed for a $50 million key-person disability insurance policy, payable to the company in a lump sum after 12 months, should the CEO be unable to perform his duties.

RESULT:

With a reasonable level of key person disability insurance protection in place, an additional succession planning strategy was created to manage the associated risks if the CEO were seriously disabled.  Several sub managers were also identified as critical, and additional protection was likewise sought for four other investment managers.