What happens when the founder dies?
It may surprise you to know what happens when the controlling shareholder of your firm dies.
If no prior arrangements have been made for transferring control to other members of the firm, the owner’s interest will pass to his or her estate and, in so doing, will automatically terminate all investment management agreements — with both separate accounts and hedge funds — unless the transfer of control to the estate (and whoever inherits it from there) is consented to by the owners of the separate accounts and the investors in the hedge funds.
Although owners of separate accounts can typically withdraw their assets at any time, hedge fund investors must usually provide prior notice before redeeming their interests and, when a fund’s total redemptions are substantial, its manager may have the authority to either gate or suspend them.
If control of the manager changes, however, prior notice requirements, suspensions and gates may be ineffective, and a lot of money could disappear quickly.
How and when the necessary consents may be obtained to avoid that result will be determined by the IMAs of the separate accounts and the governing instruments of the hedge funds.