Sometimes I sit and reminisce on how amazing it would be if the only changes that occurred in life were improvements. Imagine life without the negative effects of aging. Imagine life without the certainty of death. Imagine a life where you found your burning passion early, and this flame never burned out. Imagine a life where the prospect of greener pastures did not exist. Imagine a life where people never did bad things or bad things never occurred. Unfortunately, the world is designed as an obstacle course with an unknowable and unforeseeable combination of good and bad things. We all navigate life’s elusive terrain to the best of our abilities, and it would be foolhardy to think that investing in funds managed by people would be any different. Similar to inevitable changes in daily life, fund managers also age, pass away, lose passion, or leave to seek greener pastures. It is simply the cycle of existence.
In an ideal investor world, an allocator would map a space, identify investment managers with desirable characteristics, self-inflict due diligence brain damage, select a candidate right before or at its prime, confirm alignment, and enjoy the fruits of alpha for infinity. However, in the real world, “UTOPIA” is just an album by Travis Scott. Continuity of good things is sought by every living being, including investors. Sadly, reality instructs us to prepare for a break in continuity. Fund managers and their investors alike are keenly aware that for their relationship to be able to stand the test of time, the GP’s underlying culture, philosophy, and values have to stay relatively intact. A well-thought-out and transparent GP succession plan goes a long way to instill enduring confidence from LPs and internal staff. Transitioning leadership and ownership of a company is never an easy endeavor, but while many have struggled to make the process smooth and seamless, others have succeeded in making the changeover feel natural and positive. Below are some thoughts around GP succession that I have gathered throughout my many years as an analyst.
- Depiction/illustration of long-term planning: It’s always reassuring when a manager can depict and illustrate thoughtful organizational planning for the future. The ability to plan a succession well in advance minimizes many LP concerns, including current leadership’s alignment with investors, organizational stability, and existing incentives. Of course, the future is always uncertain, and things can change suddenly, but having a detailed plan that considers the current state and contingencies for unforeseen circumstances gives LPs some peace of mind that the GP prioritizes continuity.
- Early access to and showcase of the next level of leadership: It is one thing to have a detailed succession plan on paper or as a talking point, but it is a whole other thing to socialize the actual people with those who will be entrusting their capital to them. Building LP familiarity and rapport with the likely successors helps avoid future shocks or the need for some investors to undergo an overly tedious and stressful reevaluation of the manager. Based on my experience, when provided broad access to all levels of team members, I can quickly evaluate who in an organization is capable of effectively taking over from the current leadership. Most of the time, my assessment aligns with that of the current leadership team’s thinking of who the front runners are, but it’s impossible to form any semblance of an opinion when access is limited. Additionally, early access to successors allows LPs to get a clear sense of their track records, personality traits, tangible strengths, and intangible qualities.
- Proof of the availability of and access to ongoing senior guidance: In some situations, a wholesale shift where organizational control is fully transferred to successors is necessary. However, in many succession cases, a gradual transfer of power is preferred by investors because there is comfort that senior leadership still plays a role in ensuring the continuity of ethical practices, decision-making, philosophical beliefs, and cultural non-negotiables. Having an emeritus leader or a senior oversight board of some sort in place for some time for high-level guidance can be a very effective way of calming the nerves of skittish LPs.
- Third parties always seem to add confusion: Although it is sometimes a necessary evil when executing a succession plan, in my experience, involving third parties always seems to create more chaos, questions, and confusion rather than calm. The negative connotation with third parties not only refers to bringing in outside (non-homegrown) successor leadership but also to bringing in a third-party financial institution to help with the transition of equity. The reasons bringing in non-homegrown professionals as part of a succession plan can be detrimental to continuity are not rocket science by any means: 1) Signals a weak internal bench, 2) Is an actual break in continuity, 3) Potential for cultural disruption, 4) Can be a catalyst for increased future turnover 5) Could cause style drift, etc. Regarding bringing in third-party financial institutions, I have noticed that using a bank to structure a buyout of past leadership, while ensuring long-term devotion of new leadership, can be a great incentive plan. However, when the third party is an investment firm, things could get tricky because future alignment with LPs as well as motives (performance versus profits) could quickly become hazy.
- Periodic check-ins for feedback and to report internal developments: Taking the temperature of LPs is never a bad idea, particularly after a significant event like an executed succession plan. GPs who reached out to me periodically to ask my views on how I thought they were doing were always given bonus (brownie and real) points. The magnitude of points increased as their questions to me became more focused and signaled introspection, and also when the GP provided insights into internal goings-on. I believe the times right before and after succession events are perfect opportunities to check on investor sentiment and keep them in the loop about how the internal team is generally responding to impending or occurred events.
Anthony Kwesi Hagan
Founder and Head of Research, FreedomizationTM
July 13th, 2025
