Succession Planning for Hedge Funds: Industry Veteran Joel Press Weighs In on Governance, Compensation and Equity

By Elana Margulies

Succession planning for hedge fund managers has three components: governance, compensation and equity, according to industry veteran Joel Press, Founder, Press Management, a New York-based firm which provides services specializing in succession planning, compensation, business strategy and operational issues.  At EisnerAmper’s CFO Roundtable, which took place December 2, Press detailed how CFOs can address those parts when the firm’s founder steps aside in order to maintain investor confidence.

Governance: Press, who does succession plans in the cases of death, disability and retirement, emphasized that governance is deemed the most important but also one of the most complicated aspects of succession planning because it encompasses the founder’s family wealth. He specified in the case of a death, the estate would naturally take over. However, the fund’s governance document might detail that someone else at the firm is the successor. To alleviate the conflict, Press said the will would have to be adjusted to allow a firm’s successor to be responsible.

Compensation:  Press specified that in the majority of cases, when the firm’s founder runs the business, he or she is still incentivized. However, he distinguished that if a founding partner leaves the business, assets are not capped for founding member and might be capped for non-founding member when there is a sunset payout. 

Equity: Press told CFOs if the founder wants to sell a certain percentage of their business, the firm must have a plan for how much equity he or she will maintain. Further, he specified that there are tax implications for equity, illustrating that one’s equity cannot be changed without a taxable event unless it is tiered.