The New York Times has added to the mounting criticism of the Cayman "rent a director" model, with an article (including video!) and follow up blog commenting on the large number of directorships held by certain individuals on the island, with a focus on the self described "Goldman Sachs" of the industry, dms.
This article continues other, strongly critical commentary, including a May 2012 leader in the FT, "A Call to Fix Hedge Fund Governance" following on from earlier FT articles in November 2011, "Hedge fund investors urge transparency", and a follow up, "Businessman turns local niche to Global Niche".
Castle Hall's own views on the directorship debtate were set out in our recent white paper - "Redefining Corporate Governance: Towards a New Framework for Hedge Fund Directors". In that paper we outlined the "6 C's of governance", being Competence, Capacity, Composition, Choice, Compensation and Control.
The fact that Cayman corporate governance continues to win column inches in the top tier, global business press makes it clear that this issue will not go away. As such, it has become vital for the offshore directorship industry to address, clearly and unambiguously, the core question of capacity - the maximum number of boards upon which a director can serve with any plausibility.
We would agree that the capacity question has some nuances: should we consider, for example, the number of client relationships or the number of funds (especially when dealing with master / feeders or multi layer fund structures). However, such questions are refinements and do not not distract from the central problem: we have yet to encounter any investor - let's repeat that, ANY investor - who is remotely supportive of the view that an individual serving on 100+ boards meets their expectations as to the standards of care and attention they expect from a board member entrusted with fiduciary oversight over their offshore hedge fund assets.
As a first step, we would call on the Cayman Islands Monetary Authority to step up - given the new standards of transparency set by the SEC, Cayman should offer offshore investors an easily accessible, searchable database of Cayman funds that allows investors to confirm the number of directorships held by each service provider.
Alternatively, perhaps the SEC could do this if Cayman won't - it would only take a quick addendum to the newly enhanced ADV and supporting schedules for managers to be mandated to identify the directors of their offshore funds.
However the information is mandated, the days when directors decline to confirm the number of their Board appointments - and let's face it, there's only one reason why you would want to decline that information - are numbered.
Hedge Fund Operational Due Diligence
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