SUCCESSION PLANNING: A Must, Not an Option for Investment Managers

Inc.com had a tongue in cheek, but interesting article yesterday discussing an issue being dealt with by both business owners and…Kim Jong-un. While the comparison is humorous, the topic discussed is exceptionally important: Succession Planning.

Succession planning for most businesses is difficult. Any plan needs to be well thought out and comprehensive, but this can be an emotional and uncomfortable process. Although, what likely makes your clients even more uncomfortable is your not having an adequate plan in place.

We've all been told to plan for the scenario, if a senior executive suffers an unexpected illness or is “hit” by the proverbial bus. Even if there is a clear line of succession, how much of the value in a firm is tied up in that person, including their relationships and knowledge? Furthermore, companies, especially service business like investment managers, should be planning for a healthy transition when it is time for a generation to retire or leave the firm.

In either case, when an executive leaves, without proper preparation, clients leave and a firm loses value, and in the case of investment managers, lose assets under management. Companies, especially service business, like investment managers, need to ensure that the next generation is not only capable, but has been involved in decision-making, particularly the future direction of the organization and the investment process.

A departing executive is one scenario, but the need for succession planning is even more important when contemplating a liquidity event to capture the legacy value of your firm through a potential transaction, including but not limited to merger, acquisition, recapitalization and/or divestiture. Succession planning is a series of steps to be implemented over time. The process may start with a simple rebalancing of the equity interest amongst the partners and other important employees to reflect changes in the strategic direction of your firm. On the other hand, it could be as involved as modifying the formation documents of the firm to include the repurchase arrangements amongst the firm and any equity stakeholder upon the termination of their respective relationship with the firm along with a related financing plan and a specific personnel development plan for the next leadership of the firm approved by the governing body of the firm.

The benefits of creating long-term stability for an organization are undoubtedly worth the work of preparing a succession plan.

Lessons Learned: Succession Planning isn't optional.

Lawrence C. Manson, Jr.
Chief Executive Officer
NexTier Companies, LLC

WELCOME

Welcome to the new blog of NexTier Companies, LLC. We will be writing about a number of topics within the investment management industry, but first I want to introduce you to our firm. 

Jim Casselberry and I started this firm because we felt there was a need in the institutional investment management space for a talented and experienced team to provide consulting solutions to the industry. In particular, we feel we can assist emerging managers to understand the institutional landscape, to prepare for institutional investment manager search scrutiny and to capitalize on access to the institutional marketplace.

As we have begun talking with other participants in this industry ecosystem, it has affirmed our belief that our business offering can make, both traditional and alternative, investment managers more effective and successful.

Our senior consultants, including Jim and I, average 25 years of business experience working at traditional and alternative investment managers leading their investment process, serving as consultants to many of the largest institutional investors and working at institutional investors allocating and selecting Managers, across all asset classes. This experience makes us uniquely qualified to assist emerging managers in finding, developing and implementing best business practices to achieve success.

Our staff has worked with or for an array of different organizations, including JP Morgan Chase, Northern Trust Company, BlackRock, Inc., PIMCO, the City of Chicago, General Motors and a myriad of other corporations, endowments and foundations, investment advisors and consultants, public pension plans and federal, state and local governments

Send any questions, comments and topics you would like to see covered to socialmedia@nextiercompanies.com. Stay up to date on what is happening with us at nextiercompanies.com.

Follow us on twitter @nextiercos. Thanks for reading, and see you soon.

Lessons Learned: Add value and people will listen.

Lawrence C. Manson, Jr.
Chief Executive Officer
NexTier Companies, LLC