Demand for Directors Growing for Hedge Funds
Cayman Net News (Monday, Jan 29, 2007)

As the number of funds registered in the Cayman Islands continues to grow, it could put a lot of pressure on the demand for independent directors who sit on the boards, according to the Managing Director of Athena International Management.

At a recent hedge fund conference in Cayman, Allison Nolan of Athena International, which specialises in providing independent directors to hedge funds, said the growth in the investment funds industry means there is a potential that the fund industry may not have enough experienced directors with capacity and independence to serve on the growing number of hedge fund boards.

“The increased awareness in the funds industry of the importance of sound corporate governance has led to an increase in demand for the service of independent directors,” said Ms Nolan.

“The continuing growth of the hedge fund industry raises issues regarding the availability of high quality, knowledgeable and credible independent directors and implicit in this is the question of capacity for each “professional” independent directorship service provider.”

She added that this issue was not an easy one to solve as there are no official rules that regulate the number of directorships that can be held or at what point that individual reaches capacity.

“There is no magic number at which a director can be deemed to have reached maximum capacity and should refrain from taking on any further directorships,” she told the panel.
Both the quality and the work involved can be very different from fund to fund, and she warned that this may cause problems for both the fund and the directors.

The issue of choosing and engaging the right director is crucial to a fund, but if one fund hires a director with a large portfolio already and another fund makes greater demands on the director’s time, he may end up neglecting other commitments.

It is essential that independent directors remain committed where there is more emphasis being placed on good governance, especially in light of hedge fund blow ups such as Bayou Group Hedge Fund.

“It is important for an independent director to have a level of commitment to the role and not “jump ship” at the first sign of trouble. 

The consequences of a director seeking an out at a very early stage of difficulty could turn a situation which may have resolved itself in any event into a disaster for the fund, especially in terms of investor confidence,” she added.

Confidentiality and the problem of conflict of interest was also raised as another concern in the hedge fund industry.

“An independent director may sit on the boards of two totally unrelated funds which have very similar investment strategies or may be on the board of a funds which invests in a fund of which they are also a director.

“Directors have a duty of confidentiality so that any proprietary information in relation to a fund that is not in the public domain must not be disclosed to the manager of any other funds. This also raises conflicts of interest issues,” Ms Nolan said.
As Cayman continues to experience phenomenal growth in hedge funds, issues such as independence, quality, professionalism and capacity of independent directors will become a growing concern for the financial sector.

“As industry standards elevate the independent director has to adhere to higher levels of performance in the role to ensure that they meet the expectations of investment managers and protection of investors’ interests,” added Ms Nolan.

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Based in the Cayman Islands, Athena International Management Limited is a sophisticated offshore provider of directorship services, primarily to the investment funds and structured finance industries, together with a comprehensive range of corporate services. For more information visit www.athena.ky