What Does It Take to Change Who Runs the Fund?

An investor reading the transfer article is usually reading it about itself: what it has to satisfy before it can sell, and to whom. Most of Article 17 is spent there, and the conditions are demanding enough that a complete seller file still does not guarantee an answer. The last three sentences of the article turn around and point in the other direction.

Section 17.3 opens “notwithstanding anything to the contrary provided herein” and then bars three things without the prior written consent of [85]% in Interest: the general partner may not transfer any of its interest; no Change of Control shall occur; and the fund manager shall not cease to be the fund manager, except where the removal machinery in §10.2.3.3 requires it. One threshold, three prohibitions — and at [85]% it sits above the 75% in Interest that §19.1 sets as the default for amending the agreement.

What counts as a change of control

The definition carries the weight. A Change of Control is conduct resulting, directly or indirectly, in either the Key Persons ceasing to control the general partner and the fund manager, or the Key Persons together being “legally and beneficially entitled to less than [75]% of the Carried Interest.” The first limb is what the phrase suggests. The second is the one worth reading twice: an investor’s protection reaches the economics, not only the org chart. A named group that still runs the firm day to day, but has sold most of its entitlement to the upside, has triggered the clause.

Control is defined too, and broadly — “the possession, directly or indirectly, of the power to direct or cause the direction of the conduct, management or policies of such Person, whether through the ownership of securities, by contract, agreement or otherwise.” A contractual arrangement that hands direction to somebody else counts, without a share changing hands. Note also that the first limb reads “the General Partner and the Fund Manager” rather than either one.

The duty to tell is wider than the gate

Both limbs of the definition carry a proviso, and the provisos do something the prohibition does not. The general partner shall promptly notify the limited partners of any transfer by any of the Key Persons of their control of the general partner or the fund manager, and of any transfers by any of the Key Persons of any portion of their entitlement to the Carried Interest.

Any portion. A key person selling a slice that leaves the group comfortably above [75]% has not caused a Change of Control, needs nobody’s consent, and still has to be reported. The consent gate and the reporting line sit at different places, which means the investors who negotiated this can watch the number move well before it becomes a number they get to vote on.

The same conduct then lands in a second machinery. A Key Person Event is defined as one of two things: a named person ceasing to devote the required time and attention, or a Change of Control. Both routes run only “at any time during the Commitment Period.” Section 17.3 carries no such limit. Once the commitment period closes, a change of control still needs [85]% in Interest and no longer trips the key person provisions at all.

An investor’s hardest transfer question is usually about its own exit. The last three sentences of the article answer a different one — what the fund owes an investor who committed to a named group of people, and how much of that group can quietly change before anyone has to ask permission.