Executive tiering structures in key person provisions

Key person provisions, which require named key executives to devote ongoing time and attention to a fund, are integral to fund governance. They are designed to protect investors by ensuring that critical individuals remain engaged in the management and direction of a fund.

In the evolving landscape of private equity, real estate, and infrastructure funds (referred to collectively as ‘the funds’), the mechanisms for managing key person risk have become increasingly sophisticated. The adoption of tiering structures – primarily through Group 1 and Group 2 classifications – and the emergence of points-based systems have shifted how funds approach succession planning, governance, and investor protection.

Group 1 and Group 2 tiering structures

At the core of key person provisions are tiering systems that distinguish between different levels of responsibility and influence among key individuals. The traditional framework divides key persons into ‘primary’ (Group 1) and ‘secondary’ (Group 2) categories.

Group 1 comprises those whose departure or reduced involvement would fundamentally impact the fund’s strategic direction, while Group 2 includes professionals whose roles – although important – are more limited in scope.

Fig. 1: Key person event triggers across asset classes

_{Source: Preqin Term Intelligence, as of February 2026}

This hierarchy is reflected in the triggers for key person events (typically a suspension of the investment period unless investor consent is obtained). The ‘Devotion of time and attention’ trigger is overwhelmingly prevalent for Group 1 executives, with incidence rates exceeding 90 funds across all asset classes and peaking at 98 for private equity (Fig. 1).

In contrast, Preqin Term Intelligence data shows that Group 2 key persons are subject to this trigger far less frequently – occurring in 59 funds in private equity, 43 in real estate, and 35 in infrastructure – highlighting the differentiated expectations placed on each group. ‘Change of control’ triggers are most prevalent in private equity Group 1 provisions, appearing in 36 cases, reflecting the importance placed on continuity of ownership and strategic oversight.

In infrastructure and real estate, where investment horizons are often longer and asset management functions more dispersed, such triggers appear less frequently. Improper conduct, meanwhile, is rarely included as a standalone trigger in real estate funds, and is omitted altogether in infrastructure. This suggests that behavioral risk is more commonly addressed through other governance or removal mechanisms rather than key person clauses in these strategies.

Deployment of key person tiering is commonplace

Group 1 and Group 2 tiering frameworks are commonplace in the structuring of key person provisions. This binary approach provides clarity and operational simplicity, aligning governance consequences with the presence or absence of specifically named individuals. It allows funds to calibrate remedies and investor protections according to the hierarchy and roles within executive teams.

Preqin Term Intelligence data shows that private equity funds have the greatest prevalence of tiering, with 47% featuring tiered structures, compared with 43% for real estate and 39% for infrastructure (Fig. 2). This prevalence underscores the perceived need for robust succession planning and risk management in larger or more complex funds and, equally, the sector’s reliance on identifiable deal leaders and the premium placed on individual track records in fundraising.

Points-based systems: an emerging alternative

As fund organizations scale and team structures become more intricate, the potential limitations of binary tiering have become apparent – the model can overreact to isolated departures while failing to address the gradual erosion of broader team capacity.

In response, a minority (but growing number) of funds – just over 8% across all funds – are adopting ‘points-based’ key person models, with higher adoption in private equity (9%) compared with infrastructure (5%) and real estate (2%). While still firmly a niche approach, this distribution suggests that points‑based models are more readily adopted in strategies where team size and functional specialization are greater.

Fig. 2: Tiering systems across asset classes

_{Source: Preqin Term Intelligence, as of February 2026}

In a points-based system, each key person is assigned a numerical weighting reflecting their relative importance. A key person event is triggered only when the sum of lost points exceeds a defined threshold. For example, a founder might be allocated three points, while other senior professionals receive one point each, with a trigger set at four points. This means that the departure of a founder alone would not necessarily prompt an event, but the combined loss of a founder and a senior professional or several senior professionals over time would.

While this system offers greater flexibility and a more nuanced view of team stability, it introduces operational complexity, requiring ongoing tracking and transparency to ensure it is effective.

Conclusion

The evolution of Group 1 and Group 2 tiering to a points-based system reflects a broader shift in how funds manage key person risk. Tiering frameworks remain dominant, valued for their clarity and ease of monitoring, especially in funds with concentrated leadership.

Points-based models, though less widespread, offer a structural approach that addresses risk as cumulative and team-based, making them particularly suitable for larger, more complex platforms.

Ultimately, the chosen tiering framework should reflect a fund’s governance priorities, approach to succession, and the distribution of decision-making authority.

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_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin accepts no liability for any decisions taken in relation to the above.}