Investors overwhelmingly believe that directors in the mutual funds sector do not have enough time to dedicate themselves fully to each board, according to a survey commissioned by the Cayman Islands Monetary Authority earlier this year.
About half of the survey respondents believe that a limit on the number of directorships held by individual directors would benefit the sector. The number is higher, about 60 per cent, among hedge fund managers and investors.
The survey on corporate governance standards, practices and the regulatory framework related to the Cayman Islands mutual funds sector, confirmed a call for greater transparency of service providers and the clarification of a director’s fiduciary duties.
In January, the monetary authority sent a consultation paper to various financial services bodies in Cayman proposing to develop a searchable, public database of licensed and registered entities to facilitate the due diligence process for investors.
Institutional investors, concerned about the ability of directors to effectively serve on a large number of boards, have in the past called for a database to determine the number of client relationships that an individual director maintains.
In its consultation paper, the monetary authority argued that limiting the number of directorships a director can hold may be beneficial, but it would be challenging to design. The monetary authority commissioned Ernst & Young to conduct the survey to assess the views in the industry on the regulatory corporate governance framework.
Ensuring that directors had sufficient time to apply themselves to every board they represent is a concern for a large percentage of those polled, including directors themselves.
The majority of respondents who argue that a limit would be beneficial, say it should be based on manager relationships rather than the number of directorships held. Such a limit would ensure sufficient director capacity, enhance the reputation of the sector and improve corporate governance practices.
The majority of service providers, however, do not feel that a limit would benefit the sector.
A cap on the number of directorships would increase fees and lead to inexperienced directors entering the sector, according to a majority of hedge fund managers, investors and directors.
Hedge fund managers are split on whether limits would cause them to consider alternative jurisdictions, but directors say it is a significant concern. Even without the adoption of a limit, investors are calling for transparency around directorships.
But while investors are almost unanimously in favour of a requirement for directors to divulge the number of directorships they hold, only half of hedge fund managers and directors would support such a measure – and a quarter is against such a proposal.
A majority of investors stated that a CIMA-managed database would be best suited to inform stakeholders and about two thirds of all respondents, who wanted more transparency on directorships, preferred such a database.
But a smaller, yet significant, number said other means of communicating the information such as the offering memorandum, upon request or in an information statement would be acceptable.
The survey found directors’ experience, knowledge, capacity and independence are considered to be the most important corporate governance elements of the fund sector in the Cayman Islands.
CIMA’s Managing Director Cindy Scotland said, “We are grateful to members of the industry, both locally and internationally, who took advantage of this opportunity to contribute. CIMA will now consider all aspects of its research and analysis and make recommendations which seek to protect the investors while retaining the Cayman Islands’ position as the leading jurisdiction for mutual funds.”
More than 170 hedge fund managers, investors, directors and various service providers gave feedback.
Greenwich Associates conducted the survey between January and February with professionals in North America, the Cayman Islands, Europe and Asia-Pacific.