Key person

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In a gaucher times called a key man, the key person — or people — are those in a small financial services organisation who provide the lion’s share of the brains and nowse. In a hedge fund, this means the two genius ex-Goldman trading whizz founding partners.

As long as these two chaps — they tend to be chaps, though the revolution is coming — still show up for work for their colossal paycheques, the future of the organisation is relatively assured. Should one of them or, God forbid both, gallivant off to their newly-acquired Caribbean islands to play with their respective collections of racing cars, they will leave behind a bunch of mediocre financial services hacks and bullshit artists with whom neither the fund’s erstwhile clients nor its trading counterparties will any longer wish to do business.

Hence the “key person clause”, entitling one to terminate a trading arrangement should the nominated key persons bugger off. If there is more than one nominated key person expect complications are around how many of them must leave before the clause can be triggered. Should it be all of them? Any of them? A simple majority?

Negotiating a key person clause can be a fascinating exercise. Here psychology conflicts with normal imperatives of risk management because, while key person clauses undoubtedly represent an Achilles heel for a hedge fund, they play so egregiously to the principals’ egos that most will be upset the not to be asked for one. There is no better validation of one’s self-worth, after all, than to be told that without your continued personal involvement a training relationship is worthless.