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No one-size-fits-all solution for hedge fund succession planning

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By: Bailey McCann | August 23, 2012

Succession planning can be a touchy subject in the hedge fund space. After the death of well-known hedge fund manager Barton Biggs, his firm, Traxis Partners provided a transition plan for investor capital that attempted to absorb investors in the funds Biggs managed himself into the funds managed by others in the firm. However, they also gave investors the opportunity to ask for their money back despite the firm's established track record, a situation may be an object lesson for fund managers currently examining their own succession plans.

"With hedge funds you have a fairly unique situation where the value of the fund is usually tied up in one person, or a few people, and that is what draws the investor. It makes handing them off to another team in the event that something happens more difficult," explains Kyle Vataha, Vice President, Pluris Valuation Advisors in an interview with Opalesque.

Hedge funds often lack the succession planning common to other types of businesses, even other types of financial firms because if the fund is a single manager or even a small investment team, there is rarely a second string waiting in the midst. Usually part of a fund's edge is the unique strategy a manager brings to the table based on his or her unique expertise.

"What happens in this space is that investment managers tend to be focused on their strategy and bringing in assets. The structure of the firm sort of develops around that out of necessity. So managers don't tend to focus on the business management components as heavily, which is why you might not always see some of these future plans," Vataha says.

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