Institutional investors are still keen to see a database of Cayman fund directors.
Daniel Summerfield, co-head of Responsible Investment at Universities Superannuation Scheme, the second largest private sector pension fund in the United Kingdom, said a letter sent two years ago to the Cayman Islands Monetary Authority by investors calling for such a database has not received a response.
Speaking during a panel discussion at the Cayman Alternative Investment Summit at The Ritz-Carlton, Grand Cayman last week, Mr. Summerfield said the database would among others show how many directorships a fund director has and who the auditors of a particular fund are.
“The Cayman regulator needs to act, and quickly, as this has been in limbo for two years. I think investors are getting frustrated,” Mr. Summerfield said. “We reserve the right to look at other jurisdictions if Cayman is not meeting our expectations as investors.”
The detailed disclosure of directorships by individual fund directors has been a matter of contention. By having access to this type of information, investors hope to detect potential conflicts of interest and gain insight on the capacity of fund directors to act effectively on their behalf.
“It is not getting a regulator to do the job for us. It is enabling us to do our job more effectively,” Mr. Summerfield said.
Asked what the motivation behind the request for the director database is, he said, “It is really to get around some of the confidentiality issues which some of the directors hide behind, largely because of the language used by some of the documents drawn up by the lawyers, which extends this to the [Confidential Relationship Preservation Law].
“And some directors believe they cannot disclose that list of directorships to bona fide investors.”
Having fund directors disclose the information to regulator CIMA would be a way of working around the confidentiality issues.
A panel of fund directors said they regularly disclose their directorships to investors, but also typically require them to sign non-disclosure agreements.
“I don’t think there is anything to be afraid of,” Mr. Summerfield said. “This is not about putting a black mark against a particular director.”
Instead it enables investors to put specific questions they have of directors into context, and creates transparency of information to assess the quality of directors, he argued.
Lindburgh Martin, chairman of Intertrust and deputy chairman of CIMA, said the monetary authority had received a lot of feedback on the regulation of fund directors in general. He agreed that there was some frustration in the industry as to how long it was taking. “But I think there is some assurance in that we are taking our time with it to get it right,” he said.
Stressing that he was not speaking on behalf of the monetary authority, Mr. Martin said he does not believe there is a need for new regulation, but rather for ensuring that existing regulations are applied properly, for example through CIMA’s onsite inspection programmes.
However, he also noted that the regular pre-approval process for directors is not applied to funds, which follow a registration process. “We ought to have a look at that,” he said.
Existing concerns that pre-approval would slow down the process of establishing funds in the Cayman Islands would have to be balanced, for example by applying a pre-approval only to certain higher risk funds.
Mr. Summerfield agreed that “regulation is not the panacea in this case” but “self-regulation is clearly required”.
When asked whether Universities Superannuation Scheme would decline investment in a strongly performing fund that has governance weaknesses, he noted, “In our case it is a deal breaker, a non-negotiable deal breaker. And we have done that in a number of cases, we have walked away from a fund that was deemed problematic in terms of its governance. Because the fantastic performance to date is no guarantee of future performance.”
However, moderator Simon Osborn, CEO of IFI Global Ltd, noted that large investors like USS are in the minority and questioned whether corporate governance is a major issue for most investors and whether there had been a major change since the financial crisis.
“We are seeing significant progress,” Mr. Summerfield said. “Three years ago we started speaking to a director and it was unheard of. Now it is common practice and it is understood that this is part of the due diligence process.
“And we have a very meaningful discussion with the directors. So I think we have seen significant improvement, particularly in Cayman,” he added.