In January 2013 the Cayman Islands Monetary Authority (“CIMA”) advised that it would consult with the private sector with a view to enhancing fund governance standards insofar as they relate to the Cayman Islands fund industry. CIMA issued a number of proposals for consideration.
KB Associates surveyed over thirty of its asset management clients to garner their views on the proposals. Four key themes emerged under the broad headings of fitness and probity, residency, capacity and transparency. The key conclusions in respect of each of the themes are as follows;
Fitness and Probity
A significant majority of asset managers, over 70%, wished to see fund directors registered with and regulated by CIMA. A typical comment was that such regulation is “a minimum requirement for 2013”. Respondents noted that many other service providers are regulated and felt regulation of directors would increase investor confidence. However a number of managers stated that any such regulation needed to be implemented in a manner which did not give rise to substantial cost increases or delays in the fund authorisation process.
Residency
A majority of respondents, over 60%, believed that a requirement for Cayman resident directors to be appointed to funds would not be beneficial to the industry. There is currently no need to have a Cayman domiciled director or administrator acting for a Cayman domiciled fund. Indeed one of Cayman’s advantages as a jurisdiction is that there is freedom of choice with respect to the location of service providers. Managers believed that retaining this flexibility was important
Capacity
Over three quarters of those surveyed stated that the number of boards or relationships which a director maintained was a consideration in assessing potential directors. However, the point was frequently made that a simple numerical limit imposed by CIMA was not the appropriate way forward. Managers expressed the view that differing fund structures and relative fund complexity placed different requirements upon directors and that an absolute number cap would not capture such complexities. Managers wished to be able to evaluate a director’s relationships and appointments as part of their due diligence and ongoing monitoring.
Regarding an appropriate number of board positions and fund relationships 70% of managers believed that up to thirty fund manager relationships was appropriate while a significant minority, 30%, felt that up to fifty relationships may be appropriate.
Transparency
All managers stated that the current practice of some directorship firms of refusing to disclose the number of board positions held was inappropriate as investors and managers need such information to make informed decisions. The comment was repeated throughout the survey that while there may be some debate as to whether or not it is appropriate to disclose client names all managers agreed that directors should, as a minimum requirement disclose the number of board positions held and asset manager relationships maintained.
A majority of asset managers believed that a centrally maintained database which held details of director appointments and possibly details of funds’ other service providers would aid transparency and facilitate the investor due diligence process.
About KB Associates
KB Associates is an independent advisory firm offering its services exclusively to the asset management industry. KB Associates has particular expertise in fund governance and compliance issues relating to offshore funds. Established in 2003, the firm has offices in Cayman, Dublin, London, Luxembourg and New York.
For further information regarding this survey or the governance and advisory services offered by KB Associates please contact us