Role of the Independent Fund director
The directors of a Fund are responsible for overseeing the affairs of the Fund, with the objective of representing the interests of the investors. Appropriate balances and controls need to be put in place, and exercised, in order to minimize operational risk on a day-to-day basis. The role of a Fund’s director comprises both legal and fiduciary obligations, which may be in the form of duties or responsibilities. Whilst the director may only have periodic involvement with the affairs of the Fund, the frequency of involvement does not diminish or discharge the director’s responsibilities. Recent high profile cases have heightened awareness and identified the risks of the Fund’s directors which can have a detrimental effect on all the stakeholders of the Fund.
Nowadays the role of the Independent Director has increased in responsibility importance and is actually considered a profession in its own right.
Best practice in Board meetings
The Board of Directors is required to act in the best interests of the fund or Company, which usually means the fund’s investors, but can also apply to other stakeholders, including creditors. The following key issues have to be considered in order to organise efficient and responsible board meetings:
It is important to ensure that sufficient numbers of the directors are independent, which is characterised by the lack of any links to companies in which the fund invests, or to significant service providers to the fund. A director, while acting on the board should declare any conflicts and act independently.
Competence and expertise
Sound and efficiently functioning Boards are diversified, bringing together different components, skills and cultures.
An integral part of good corporate governance is to hold regular meetings between the directors and those involved in running the Fund on a daily basis and this is often achieved by board meetings. In order to minimize risk for a fund and its directors, we suggest that board meetings are held each quarter (or at least, semi-annually).
Representatives of the investment manager and the administrator should be involved in the board meetings, with other functionaries such as legal counsel and the Fund’s auditor attending as and when necessary. Risk management is key and In terms of corporate governance, the board of directors must oversee the fund’s risk management policies and procedures, which can be outsourced to third parties, including the fund administrator.
Code of good corporate governance
Robust corporate governance procedures should clearly lay out the board’s terms of reference, the responsibilities of the directors, as well as the requirements for the appointment of a director, such as experience and independence.