Independent directors act as a "watchdog" for investors over the fund manager and other service providers to the fund. They act as agents for fund investors. They bring impartiality and experience to a fund's board and its oversight of the fund's affairs and activities.
It is now industry norm to see independent directors appointed to the boards of offshore investment funds. It is no longer a 'check box exercise' to confirm independent directors have been appointed. Institutional investors are increasingly concerned about the composition of the board, the experience and skill set of its members and the day to day relationship between both the board members themselves and the board and the investment manager.
There has also been a gradual trend of independent directors becoming involved with Cayman limited partnerships and private equity funds as well as acting on investment management committee's. Private equity funds are under an increasing legal and regulatory compliance burden, some sponsors are looking to independent directors who specialize in corporate governance to provide a means by which the fund can ensure it has in place a suitable corporate governance and compliance framework.
We have also seen a sharp trend to appoint independent directors with crypto experience to crypto hedge funds and blockchain funds. With an increasing recognition by crypto fund managers of the need to set up their fund with a structure expected by institutional investors and counter-parties, such as exchanges and custodians, we have certainly seen a demand for crypto focused directors.
Increased compliance pressures, both hedge funds and private equity funds are under more pressure than ever from investors not only to have in place transparent and robust internal policies and procedures dealing with matters such as expense allocation, conflicts and valuations, but most importantly to ensure adherence to such polices.
The boundaries between the hedge funds industry and the private equity industry are becoming blurred. Traditional hedge fund managers are increasing investments in private equity opportunities such as real estate and illiquid private debt, we have seen a marked growth in the number of new hybrid fund launches, institutional investors and family offices alike are reallocating capital to private equity funds in search of higher returns, and new legal and regulatory burdens that apply equally across both industries are starting to level the compliance playing field.
What do independent fund directors do?
The role of an independent director is governed by a range of factors, not least of which is established law and regulations as they pertain to the fund and its domicile. In addition, the constitutive documents of a fund should be used to establish the role of directors on the fund’s board.
Reference to common law can be used to establish some of the fiduciary responsibilities of an independent fund director, just as for the boards of normal companies, such as:
Avoid conflicts between the interests of the fund and those of the director
Be attentive to the needs of the fund, and act in the interests of the fund
Ensure he / she is properly informed about the day to day running of the fund (exercise due care and skill)
How independent should a fund director be?
Independent directors should not have personal, economic or other commercial links with the personnel working for the investment manager or the service providers serving the fund. In addition, close friends and family members, even former colleagues, are considered not sufficiently independent by many investors.
Independent directors must also be seen to be acting in an independent manner, using due care and skill. They should be able to carry out their duties independently, without relying on the fund’s manager or other directors.
Bell Rock Director Services
We routinely act as independent directors on the board of hedge funds, fund of funds, venture capital, real estate, private funds, investment committee's., investment management firms and other investment structures. We also act on the board of crypto hedge funds. Our professionals have over 25 years of senior level industry experience, having worked for well-known names in the industry. We are approved by CIMA under the Director Registration & Licensing Act and add real value to the governance framework, especially given the increased burden now placed on investment funds in terms of oversight, compliance and regulatory reporting. For further information, feel free to contact us: info@bellrockgroup.com
