Key Person - Capital Asset Management
Exceptional Risk Advisors Case Study—Capital Management
The client is a Southern California-based asset management and investment firm managing a portfolio of $17 billion.
The CIO wears many important hats—CIO, President, Chief Investment Officer, Market Strategist—as well as overseeing all of the firm's U.S. equity and hedge fund strategies. And in the past 10 years the firm's assets under management have risen from $2 billion to $17 billion, thus elevating the overall importance of the key person's responsibilities.
CIO's in the hedge fund universe are unique human capital assets. Investors invest in a particular fund based largely on performance, which is attributed to the CIO. In the event of a serious disability, cash would be needed to retrain key staff as well as manage the wind down of the fund if a permanent disability were to strike. With the obligation of succession planning resting on the shoulders of the Board of Directors, the Board saw a need to initiate additional coverage in the event the CIO was no longer able to perform his duties. The Board's directive contemplated an accelerated divestiture clause built into their investment agreements that allowed investors to accelerate the rate at which investors can pull their funds in the event the fund manager is incapacitated.
Exceptional Risk Advisors designed a $50 million key-person disability insurance policy, payable to the company in a lump sum after 12 months, should the CIO be unable to perform his duties.
With a reasonable level of key person disability insurance protection in place, additional succession planning conversations have taken place, and a strategy has been created to manage the associated risks involved if the CIO were seriously disabled. A number of sub-managers were identified as critical and additional protection may be sought on four investment managers.
Exceptional Risk Advisors Insight
The insurance advisor to the client on the case hadn't previously sold key person disability insurance. As a seasoned life insurance advisor, it was clear to him he was working with a client who was genuinely irreplaceable and who required a very sophisticated, all-encompassing key person strategy. After thoroughly educating the advisor on the product, Exceptional Risk Advisors delivered two designs with benefit limits ranging from $25-$75 million. Following board approval, $50 million of key person disability coverage was placed using the requirements obtained for the life insurance placement.