This document outlines best practices for succession planning in hedge funds. It discusses 3 key aspects - the rule, the rub, and the remedy. The rule identifies best practices such as planning in advance, engaging the board, and setting up formal assessment processes. The rub explains challenges hedge funds face, such as short-term focus and lack of depth. The remedy provides solutions like seeking expert guidance, developing internal talent, and having emergency succession plans. The overall message is that hedge funds need stronger succession planning to address leadership needs over the long run.

1. © Korn Ferry. ALL RIGHTS RESERVED.
The 3 “Rs” of hedge fund
succession planning.
The rule The rub The remedy
1. Plan in advance – CEO succession
is neither short-term nor event
triggered, but an ongoing discussion
with the board to address short-,
mid-, and long-term company needs.
2. Engage the board – The board
should own and drive the CEO
succession-planning process by
having it on the agenda regularly,
scanning inside and out for potential
successors, and ensuring talent
development at all levels.
3. Set up a formal assessment process
Facilitated by the CEO, this ensures
standards for sustained leadership
and provides the board with
additional opportunities to
evaluate priorities and needs.
4. Create a “future CEO” profile –
The board should create CEO
profiles that align with the
company’s business strategy and
represent required short-, mid-
and long-term competencies for
future generations of CEOs.
5. Expand the pipeline – The wider
and deeper the pipeline of
candidates the better. Companies
should develop talent internally
and also have knowledge of top
talent in the external market to
maximize options and minimize risk.
–
Hedge funds operate in
current and shorter-term
(market) environments, which
often are at odds with longer-
term leadership requirements.
The majority of hedge funds
remain private, largely owned
and run by original founders.
While some have boards and/
or advisory committees, they
are not tasked with driving
succession.
While formal assessment
processes have become more
of a priority, CEO assessments
are not the norm. The need
to identify internal succession
candidates is just starting to
take hold.
Hedge funds have
historically focused on
driving performance
versus anticipating
future leadership needs.
Due to their generally lean
composition, hedge funds
do not have the depth
of leadership of major
corporations.
Hedge funds focus on the
strategy and longer-term
leadership needs in addition
to current, shorter-term
investment expertise.
Fund founders/CEOs should
seek objective guidance
from expert advisors in the
succession-planning process.
Founders/CEOs should
recognize that they may
lack objectivity to properly
assess the capabilities of
future leaders and should
rely on a rigorous, proven
assessment process.
Focus on creating bench
strength by developing
insiders who align with
future needs of the firm.
Focus on both near-term
leadership and development
at an earlier stage. Bring in
outsiders, as necessary, long
before a successor is required
so they can be developed and
steeped in the culture.

2. © Korn Ferry. ALL RIGHTS RESERVED.
The 3 “Rs” of hedge fund succession planning. (cont’d.)
The rule The rub The remedy
6. Expose the board to the bench–
Board members should gain
valuable insight into the leadership
pipeline by interacting with the
company’s highest potential leaders
in a variety of settings.
7. Address succession dynamics
head on – Succession is a sensitive
topic for boards and CEOs, but
there are processes for aligning
roles and responsibilities.
8. Talk succession regularly – At a
minimum boards should have an
annual, formal discussion with the
CEO on succession planning and
a mid-year update to maintain
succession as an ongoing board
priority.
9. Manage the transition – The handoff
between incumbent and successor
and related communications should
be planned well in advance, and
roles of all key parties carefully
delineated.
10. Plan for sudden loss of leadership–
In parallel with the long-term
approach, companies must have an
emergency CEO succession plan in
place at all times. This plan should
be reviewed at least once annually,
and should include multiple options
for leadership.
Lack of a credible board to
advise potential future leaders.
Without a board to keep a fire
lit under CEOs, they may keep
their heads firmly planted in
the present.
If succession is planned for, at
all, it may only be discussed
on an ad hoc or immediate
needs basis. This has recently
become more of a priority for
some firms.
Even if a successor has been
planned for, a poorly planned
transition can rock the boat,
send the wrong message
internally and externally, and
destroy value.
Funds may face significant
redemptions, be in greater
jeopardy, or even be forced
to close, with no emergency
successor lined up.
In the absence of a formal
board, assemble a roster of
experts and advisors to assess
and advise on those being
groomed for leadership.
Take the bull by the horns and
recognize why succession
planning has been avoided
and resolve to address it
regularly and systematically.
Raise the profile and rigor
of the succession planning
process by tying it directly to
regular strategy discussions.
Plan for a gradual transition
so that the successor, the
organization, and external
constituencies can adapt to
and buy into the change in
leadership.
As a first step in succession
planning, designate a
successor to maintain the
confidence of all stakeholders
should the “hit-by-a-bus”
scenario occur. Ideally, this
should be in place for all “key
man” professionals.