Succession Planning – One More To-Do-Item before Retirement

Earlier this week, I was at the Ernst & Young (EY) Global Hedge Fund Symposium.  EY audits approximately 40% and provides tax services to approximately 50% of the top 100 100 Global Billion Dollar Club hedge funds.  Given the size and maturity of its hedge fund clients, it’s not surprising to hear discussion about succession planning.

An interesting survey result shared by EY: hedge funds believe investors’ loyalty lies with founders, but investors’ primary focus is on the continuity of individual portfolio managers.  What’s more interesting is the panel discussion held among prime broker capital introduction team, COO & CFO of asset allocators about this subject.

A few notes to share with my blog readers:

1. Succession planning isn’t the deal breaker for investment, but can be the main reason for investors to redeem.

<My thoughts: this is probably less of a concern for emerging fund managers, who should really worry more about the financial well-being of the management company, see my other blog articles on what investors should have asked)

2. Investors find very few successful transition.  Even if the fund managers “warm up” the investors for years by bringing the next leader to all meetings, when the previous leader steps down, most investors will still need to evaluate the new team going forward.

<My thoughts: this is disencouraging.  If we factor in the turnover at the funder’s investment team, it is even worse.>

3. Investors are more concerned for the period before the transition takes place, rather than when the transition happens.  They want to know when the portfolio manager is practically “checked out” while remaining on the board officially.  Advice to fellow investors to detect such incidents:

1) Are the key personnel taking long vacation? or constantly out of office?

2) Are they starting new business?

3) Any dramatic changes in their personal lives, such as divorce? death of important family members?

Although many other business have gone through succession planning, such as CPA profession, they haven’t had much success either.  I don’t have an answer, and will appreciate input from my readers.