Corporate Governance Survey

In association with Miller

THE HEDGE FUND JOURNAL
2

On 21 November 2011 the Financial Times ran a front page story under the headline ‘Cayman directors collect fund jobs’. The opening paragraph read ‘A small group of Cayman Islands ‘jumbo directors’ are sitting on the boards of hundreds of hedge funds as demand for independent directors booms in the Caribbean tax haven.’

Whilst the writer of this story may have evidence to show that hedge funds are retaining these so-called ‘jumbo directors’ to sit on their boards, the results of our survey – in association with Miller – would seem to suggest that very few so-called ‘jumbo directors’ sit as independent directors on the boards of funds managed by Europe’s largest hedge fund managers.

Nearly half (48%) of the firms surveyed said they seek to limit the number of directorships their independent directors can hold by restricting the number of fund management group relationships they can have; and of this sample size 60% said they restricted the number of relationships to 10 or fewer.

Of those firms (52% of those surveyed) who did not impose any sort of limit, only one firm said that it retained a firm of professional directors and most firms said their funds’ directors were directors on a relatively small number of ‘other’ fund boards. One firm said ‘we don’t use professional directors, our directors are only directors on our funds and, at most, one or two other funds.’ However, many of the firms surveyed acknowledged that investors were raising the issue of corporate governance in a way in which they hadn’t done so before. This suggests that investors are more aware of the importance of good corporate governance at the fund level which – roughly translated – seems to mean boards comprising directors with the right skill sets, and where there is a majority of independent directors who do not work exclusively as independent directors. Continuity also seems to be important; approximately 50% of firms surveyed said the composition of their fund boards had not changed in the last three years.

In carrying out this survey we interviewed 25 hedge fund managers who between them manage assets of approximately $118 billion.

Key Findings

  • 76% of respondents said that governance, and whatinvestors expect in the way of governance, had become more of an issue for them in the past few years
  • Only 20% of respondents said they were focusing more on corporate governance. The balance (80%) said their fund level governance was robust and had been for some time.
  • 60% of respondents who sought to limit the number of other fund directorships their directors held set a limit at 10 or fewer other relationships
  • 96% of respondents have a majority of independent directors sitting on their fund boards
  • 40% of respondents have no fund manager representative on their
  • fund boards
  • 68% of firms surveyed set the limit for D&O insurance by reference to the AUM figure alone
  • 76% of respondents retain a lawyer to review the policy terms,
  • pre-contract
  • 76% of respondents said the issue of D&O insurance had become more important in the last 3 years
  • 50% of respondents said the composition of their fund boards had not changed in the last 3 years

To download full survey, please click here