Independence Day

Allison Nolan from Athena International Management Limited talks about the importance of corporate governance and the challenges of starting up a management company in Cayman.

Corporate governance is becoming more conspicuously important as hedge funds enter the mainstream in the global financial environment. In Cayman, the world’s premier hedge fund jurisdiction, this is especially true.

“Following the recent wave of corporate scandals, the political and media attention that they have attracted and the ensuing increased regulatory scrutiny, there has been an increased focus on the question of corporate governance for all offshore vehicles generally and hedge funds are no exception,” says Allison Nolan, the founder of Athena International Management.

Nolan, whose legal and financial experience has afforded her the highest calibre of knowledge and understanding of offshore fund management, set up her firm to provide independent directors principally to the boards of Cayman-registered hedge funds.  

“It is essential for a hedge fund operation to be able to demonstrate both financial integrity and legal independence – and consequently, having independent directors on the board of a fund is fundamental to sound business practice,” she asserts.

A taxing job
Managing a fund is about more than picking stocks, and Nolan believes that sound governance depends on a fund’s board containing a broad range of expertise – including a complete understanding of a jurisdiction’s tax and regulatory requirements.

“The tax and regulatory treatment of offshore vehicles such as investment funds can only be maintained if the fundamental principles of corporate law and governance are also properly maintained,” she says. “Implicit in this is the nature of a corporate vehicle and its distinct and separate legal personality. The directors of a corporate fund are its principal corporate governors, and having individuals on the board with appropriate expertise and skill to ensure the legal framework of the structure works as intended, and that the fund keeps within its investment objectives and regulatory requirements, is crucial in preserving the fund’s status.”

As due diligence and compliance creep up funds’ agendas, a degree of independence in those funds’ management becomes key. It has become a noticeable trend in the sector, as Nolan explains:

“Previously the focus on the issue of the costs involved in structuring a fund meant that this may have been given inadequate consideration,” she says. “In addition, there was a trend for service providers, such as the fund’s administrators, to provide at least one of the directors to a fund.

“However, driven not only by the promoters of the fund, but also the service providers themselves, who have tightened their own internal mandates and requirements, consequently restricting the extent and the circumstances in which they are prepared to act in this capacity, the selection of directors is increasingly confined to ‘true’ independents who have no relationship or conflict with any of the agents or third parties involved with the fund.”

The trend towards independent directorship has also been fuelled by the increasing investment in hedge funds – often through funds of funds – by institutions, who demand greater levels of accountability on behalf of their own members.

“Part of the impetus is being driven by fund of funds, whom in carrying out their due diligence on the investment managers of, and the funds in which they are proposing to invest, seek to impose the very highest standards of corporate governance in every respect, to satisfy not only their own stringent requirements but also those of their major, principally institutional, investors,” says Nolan. “Consequently, a fund that has hitherto operated with say, one independent director, may be persuaded to increase this to a majority of independent directors on the board, thus perpetuating the increase in demand for independent directors.”

Local rules
Good corporate governance is not only in the interests of investors and service providers. The Cayman Islands Monetary Authority has ensured this is a legal requirement for hedge funds domiciled on the island – and Athena is already one step ahead.

“Within the Cayman Islands, once a fund has been registered, The Cayman Islands Monetary Authority (“CIMA”) has powers to take enforcement action where it is satisfied that the management of a fund is not being carried out in a fit and proper manner or that a person holding various positions such as director of a regulated mutual fund is not a fit and proper person to hold the respective position,” says Nolan. “However, as Athena’s directors have already been approved by CIMA and are subject to their regulatory scrutiny on a continuous basis, this brings added comfort to the operator of the fund that their selection of directors is not only a valid one but also that we are aware of and up-to-date with developments in the Cayman legal and regulatory regime.”

Legal eagle
Nolan’s legal background has proved especially valuable in this respect, she says: “As a former partner in a major offshore law firm, I have extensive experience in the hedge fund industry. In providing services as a director of a hedge fund, I am able to add value from a legal and regulatory point of view.”

Nolan is confident that her company is equipped to tackle these issues. They were built into her original vision for the firm and form the backbone of its mission statement.
“At Athena we are cognisant of the ultimate standard of duty and care in corporate governance and in doing so provide directorship services with the chief aim of acting in the best interests of the fund, thus providing its investors with complete confidence and security,” says Nolan.

“While being uncompromisingly professional in the services that we provide, we also have a commercial approach so that the managers are free to focus on the investment strategies and decisions. We take responsibility for ensuring the legal and regulatory issues are handled, with the fund meeting the foremost standards of corporate governance.”

Starting up
Allison Nolan set up Athena at the beginning of this year. Below she explains some of the challenges and considerations that gaining a foothold in Cayman’s sprawling hedge fund sector presented.

“The location of our business was key. We were fortunate in obtaining office space in our prestigious location at Harbour Place, which is ideally situated within the George Town business community.

“Equally I wanted to set everything up properly and to the highest standards possible. Although it is not a mandatory requirement, Athena International Management has obtained a Companies Management Licence from the Cayman Islands Monetary Authority. This means that, having the advantage of regulatory oversight, our clients are assured that we maintain the highest standards in that we are subject to continuing reporting and formal audit requirements and supervision by the Authority. We also hold full insurance not only for the company but for its directors and officers.

“In addition we invested heavily in information technology, equipping us to deal effectively and efficiently with the myriad of situations that working offshore can bring. For example, we have remote access to all our documentation and email when travelling and can operate remotely with full functionality. We also have a comprehensive disaster recovery plan, with all our documentation scanned and our data available from outside of Cayman should the need arise.”

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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