Survey: Hedge Fund Partners Ill Prepared For Death

Aug 26 2008 | 1:03pm ET

Senior partners at established hedge fund firms are not doing enough when it comes to succession planning, according to a new survey conducted by accounting firm Rothstein Kass. 

In particular, very few hedge fund senior partners have planned for the death, disability or departure of another owner and the associated consequences for the firm and its operations.

"In analyzing our findings we were somewhat surprised to learn that partners are largely unprepared to handle ownership changes resulting from death, disability or termination,“ said Rick Flynn, a principal at Rothstein Kass' Family Office Group.

“For example, fewer than 30% of partners are prepared to deal with the death of a managing partner,“ said Flynn. “What was far more astounding, however, was the number of partners—nearly half—that did not know how to assess their level of readiness."

According to the research, only slightly more than half of the respondents know what person or entity will obtain voting rights of their company in the event of an owner's death.

Other findings of the survey show that almost 70% of respondents suggested that they are not prepared to handle issues arising from extended absence of a partner due to disability. Survey results revealed also show that a minority of respondents feel equipped to address departures resulting from voluntary (37%) or involuntary (35%) terminations of an owner. Finally, an overwhelming majority (75%) of those polled said they do not have a formal succession plan for ownership and control in the event of an ownership change. Of those respondents with a plan in place, more than half have not updated this plan in three years or more.

The survey, which is titled At Risk: Managing for the Future, was co-authored by Russ Alan Prince, a counselor on private wealth, and Hannah Shaw Grove, an expert on behaviors and finances of high-net-worth individuals.

The survey was based on telephone interviews with 349 hedge fund senior partners at U.S.-based hedge fund firms. Participating firms were segmented by assets under management, with almost 60% of the firms having total assets under management between $100 million and $750 million, with the balance exceeding $750 million. All of the companies represented had been operating for at least five years and had multiple owners.

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