Two LPA provisions answer the question "what happens if the people running this fund leave or behave badly": the key-person clause and the no-fault divorce. They're the LP's emergency protections — used rarely, but the only meaningful check on a GP whose strategy or principals have gone sideways.
Key-person provisions
- Key-person event
- Triggers when one or more named principals — typically the senior partners listed in the LPA — cease to devote substantially all of their time to the fund. Death, disability, departure, or reassignment all count, depending on the LPA's definition.
Key-person clauses commonly require two or three named principals to actively manage the fund. The clause triggers when fewer remain. Common consequences:
- Investment-period suspension. The GP can no longer call capital for new deals while the key-person event is pending. Existing deals can still be managed.
- Replacement vote. The GP proposes a replacement, the LPAC reviews, and the broader LP base votes (typically a majority or supermajority threshold). If the replacement is approved, the investment period resumes.
- Termination option. If LPs reject the replacement, or the timeline lapses, the fund enters a wind-down phase. Existing deals are managed to harvest; no new investments.
What “actively manage” means
The legal language usually says the principals must "devote substantially all of their professional time" to the fund. In practice this allows for:
- Managing other funds within the same firm (predecessor or successor funds).
- Limited outside board service, particularly on portfolio companies.
- Some non-fund firm-management activities.
It usually does not allow a principal to launch a competing fund, take an outside operating role, or substantially reduce their hours on the fund. Some LPAs are more specific (“85% of professional time”); some leave it to interpretation. The test in a real key-person event is "would a reasonable LP consider this principal still active" — not a clean threshold.
No-fault divorce
- No-fault divorce
- A supermajority of LPs — typically 75% by commitment — can vote to remove the GP without needing to prove cause. Most LPAs require this threshold; some require even higher (80% or 85%).
No-fault divorce is the LP's ultimate protection — it lets them remove a GP whose strategy has drifted, whose performance is unacceptable, or who has lost LP confidence for any reason without having to prove malfeasance. Key features:
- High threshold. 75% of LP commitments is hard to assemble. It typically requires the LP base to be unhappy in a coordinated way — which usually only happens after a meaningful breach of trust.
- Limited consequences for the GP.The terminated GP usually retains carry on already-realized deals and a portion of carry on unrealized deals (the “no-fault” part — they're not having performance-based forfeitures). The LP base accepts this because the alternative is unworkable conflict.
- Transition mechanics. The LPA usually defines who manages the fund post-removal — sometimes a successor GP chosen by LP vote, sometimes a wind-down trustee.
For-cause termination
- For-cause termination
- Removal of the GP for specific defined breaches: gross negligence, willful misconduct, fraud, or material breach of the LPA. Typically requires a lower LP threshold (often 50%) than no-fault, and consequences for the GP are more severe (loss of carry, indemnification denial).
For-cause is rarely invoked because it requires proof. Most underperformance or strategy drift doesn't rise to "gross negligence" — that's a high legal bar. When it's triggered, it's typically alongside fraud allegations or litigation, not as a standalone LP action.
What allocators check during diligence
- Who's named in the key-person clause? Typically 2-3 senior partners. If only the senior managing partner is named, the clause is fragile — one person leaving triggers everything.
- What threshold for replacement approval? A simple majority is sponsor-friendly; a supermajority is LP-friendly.
- What threshold for no-fault divorce? 75% is standard; 67% is meaningfully more LP-protective; 80%+ is sponsor-favorable to the point of being mostly symbolic.
- Are there carry-forfeiture mechanicson for-cause termination? Strong LPAs include them; weak ones don't.
Why these provisions matter even if never invoked
Most key-person events and no-fault divorces never actually happen. The clauses still matter because they shape the GP's incentives. A senior partner deciding whether to leave for a competing firm has to weigh the consequences of triggering a key-person event in their existing fund. A GP considering a strategy pivot has to weigh whether 25% of LPs could organize a no-fault termination.
For most LPs, these clauses are read once during initial diligence and never thought about again. That's normal. But a fund where the clauses are unusually weak — or where a key principal has been quietly winding down their involvement — is a fund where the LP's emergency protections are already eroded. Worth the five minutes during diligence.