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Following on from our previous bulletin in this series, we look at the role of the independent fund director. Increasing emphasis on the presence of fully independent directors on the boards of investment funds by the UK Financial Conduct Authority and the US Securities and Exchanges Commission means that investment managers must pay more attention to who is appointed to the boards of their funds. This is a sentiment shared by investors, who are also starting to ask that more independent directors sit on fund boards.

But what should investment managers be asking of the directors they seek out to sit as non-executives on boards?

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?

This is an issue that has received an enormous amount of scrutiny over the last few years, particularly as regulators and investors are now asking managers to ensure there is a majority of independent directors on fund boards.

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.

Finding independent directors

Independent fund directors are in shorter supply than previously as more fund managers start casting around for the truly independent. Indeed, directors should have:

  • Experience in the investment management industry, of at least 10-15 years minimum. Ideally they should bring to the board a set of skills which is complementary to those of the other directors. Good examples are former employees of law firms, accountants with a funds background, former regulators, risk managers, portfolio managers and audit specialists.
  • Directors should have enough time to be able to discharge their duties properly. Fund managers must consider how much time a given candidate director has available, including whether they have a ‘day’ job and how many other board-level commitments they have. This extends to commitments on non-fund boards, charities, trusts, etc.

Board operations

Non-executive directors still bear a degree of responsibility for the smooth running of board meetings. They must be satisfied that the fund has been provided with sufficient information by the investment manager and other service providers. Directors must also supervise the service providers and be satisfied that the fund’s delegates – including the investment manager – are meeting the requirements of the offering memorandum and constitutive documents of the fund.

For further information, please contact Stuart Fieldhouse –

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