Former Employee Sues Hedge Fund Manager Claiming Entitlement to Bonus “In Perpetuity” Based on Capital Introductions

Accordingly to publicly available court documents, in February 1995, Kimberly Steel entered into an employment agreement with hedge fund manager Watch Hill Management (Watch Hill).  She was employed as “Managing Director, Investor Relations.”  As such, one of her main duties was to solicit investors for Watch Hill.  Her compensation, according to the documents, was based in large part on the amount of money invested by the investors whom she introduced to Watch Hill Fund L.P. (Fund).  At the end of each quarter, she was to receive a bonus equal to a specified percentage of the capital accounts of the investors whom she had introduced.  The agreement also contemplated that if those investors moved to (or invested additional money with) new funds created by Watch Hill’s principals, those investments would also count towards her bonus.  According to the public documents, Watch Hill Management terminated Steel’s employment as of January 28, 2004, and she sued, claiming that she was to receive a bonus “in perpetuity” based on the capital account balances of the limited partners whom she introduced to the Fund.  More recently, a third-party complaint was filed, containing claims arising out of the same facts and circumstances.  We describe the factual and legal allegations of the complaints, which can have relevance for any hedge fund manager structuring compensation arrangements with partners or employees hired or retained to solicit investors.

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