Governance Specialists Praise Report Shining A Light On Cayman Hedge Fund Industry

Tom Burroughes

8 July 2013

A survey of the Cayman-based hedge fund industry that showed concerns on how well it was governed should prompt the creation of a database to make it easier to track the sector, according to Carne Group, a firm specialising in how the asset management industry is run.

Carne praised the Cayman Islands Monetary Authority, however, for earlier this year releasing a survey that pointed to shortcomings and concerns about the hedge fund industry that is based in the Caribbean jurisdiction. There are estimated to be as many as 9,500 hedge funds in the Cayman Islands.

“We feel that the results clearly point towards the need for more transparency and accountability on the part of Cayman Islands fund boards. The introduction of such a database will help to increase confidence in the Cayman Islands’ funds sector and lay the foundations for future growth. In the current political climate, we consider it essential that initiatives of this kind be introduced to expand the culture of corporate governance that investors, regulators and politicians are demanding,” Carne Group said in a note issued yesterday.

The CIMA’s survey, completed by 57 hedge fund managers, 28 investors, 32 fund directors and 62 service providers, found that 53 per cent of respondents remain concerned that directors are not giving themselves enough time to devote sufficient attention to each fund board they sit on.

It also revealed that 71 per cent of investors still feel fund governance standards need to be improved, while 86 per cent of investors want to be provided with the total number of directorships held by each fund director; over half of fund directors and service providers agree. Another detail revealed that 54 per cent of hedge fund managers believe corporate governance standards are currently “fit for purpose” versus only 11 per cent of investors taking the same view. No investors rated hedge fund corporate governance standards as “outstanding”.

Carne Group said the survey results echo its own research and that of Deutsche Bank and Ernst & Young, among others.

Such findings come at a time when the hedge fund industry – holding an estimated $2 trillion-plus of assets – faces continued regulatory pressure. The European Union is shortly to implement sweeping regulatory reforms - known as the Alternative Investment Fund Managers Directive – on the EU industry.

“Once again, the emphasis in the CIMA findings is on ensuring fund directors are sufficiently independent to represent stakeholder interests, have enough experience to carry out their duties appropriately, and have enough time to apply themselves to every board,” Carne said.

Carne welcomes the initiative taken by CIMA in commissioning and publishing this survey. We feel that the results clearly point towards the need for more transparency and accountability on the part of Cayman Islands fund boards. The introduction of such a database will help to increase confidence in the Cayman Islands’ funds sector and lay the foundations for future growth. In the current political climate, we consider it essential that initiatives of this kind be introduced to expand the culture of corporate governance that investors, regulators and politicians are demanding,” it said.