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UK fund governance changes: trouble ahead?

There are going to be an awful lot of changes to the governance of UK asset management groups over the coming months. 2019 could well turn out to be a tumultuous year.

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End of the rubber-stamp era

New substance rules have profound consequences offshore directors
Prior to the market crisis relatively little was expected of what is the governing body of an offshore fund, its board of directors. The market crisis, Madoff, Weavering and various other similar scandals brought offshore directors into the limelight. These events also did a lot to bring what some called the rubber-stamping era of offshore fund governance to an end.

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What the FCA wants to achieve

The FCA’s requirement to have independents on asset managers’ boards is just a means to an end. The FCA believes it will help protect investors and bring down fees. But there is no guarantee that this will occur. If doesn’t what will do the FCA do next?

The board’s job is to balance the interests of the investors in its funds with the asset manager’s shareholders. The FCA believes that UK manager boards have got the balance wrong: they have too often favoured their own shareholders at the expense of their investors.

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Cayman corporate directors

A surprisingly large number of funds domiciled in Cayman use corporate directors only. What does that mean for the governance of these funds?

Over the last 8 years The NED has published large numbers of articles on every aspect of fund governance imaginable, with one exception it seems: corporate directors. Until we undertook our review of Cayman fund boards, in The NED’s December issue, we had no idea that they are used as extensively as they are in this jurisdiction. (Outside the Caribbean they are hardly used at all, other than in the US.)

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Struggling? Time to strengthen the board

Many hedge funds are struggling and 2019 could well be even worse. For managers committed to being around for the long term strengthening their boards at this time of uncertainty is a great way to reassure investors.

Hedge fund numbers do not look good at the end of this year. Citadel, Millennium Management, Greenlight Capital, Point72 and a host of other well-known hedge fund managers have suffered significant loses in 2018.

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