Hedge Fund Governance - Cayman Islands

Hedge Fund Governance – Cayman IslandsMarch 2016This article is intended to merely provide a brief overview and general guidance only.Hedge fund managers continue to witness extremely difficult market conditions combinedwith increased investor activity and litigation. Hedge funds increasingly face scrutiny fromfund of hedge funds, institutional investors and distributors as the due diligence processbecomes more erroneous, detailed and time consuming year on year. Existing investors arere-evaluating their investments with risk mitigation being their main focus.Investors are placing ever-increasing demands for information and transparency. Thecorporate governance framework of a hedge fund must be able to withstand this rigorousscrutiny. Hedge fund managers that demonstrate the highest standards of corporategovernance are more likely to retain their existing investor base and to attract newinvestors. Fundamentally, this enhances a managers’ ability to sustain and increase assetsunder management.Regulators like the Securities and Exchange Commission (\"SEC\") expect more frominvestment advisors who manage hedge funds from a risk management and regulatoryprospective. The SEC continues to focus closely on risk management in areas such asportfolio valuations, conflicts of interests, counterpart risk, remuneration and fees. TheCayman Islands Monetary Authority has also taken steps with the introduction of theStatement of Guidance on Corporate Governance to set out minimum standards ofgovernance with regard to regulated entities, minimum board meetings and for the boardto address conflicts of interest. The regulatory landscape has continued to evolve with theindustry navigating AIFMD and FATCA. Directors need to be acutely aware of the additionalcompliance requirements involved and the impact of regulations that may impact theoperation of the fund and its investors.Moreover, directors’ face increased workloads, more responsibility and expectations, muchhigher than before, from stakeholders who demand directors who are experienced across ofwide range of areas, professionally qualified, hands-on, up to date with regulatory changes,responsive, probe across a spectrum of risk areas, transparent and independent.

Responsibilities of the Board of DirectorsThe board of directors has a fiduciary responsibility to the fund investors and independentoversight of the fund's management. Though not an exhaustive list, responsibilities of aboard include the following: Detection of fraud and misconduct Ensure compliance with the fund's risk management guidelines Ensure compliance with the fund's investment strategy Monitoring of the fund's NAV and reviewing the fund's investment performance Review of service providers performance and addressing any issues Review of the adequacy and accuracy of information provided to investors from the fund's management Addressing compliance and regulatory matters affecting the fund or its investors Ensuring that board meetings are held, a clear agenda is set, conflicts of interest are addressed, action points indicated for follow-up and accurate minutes taken. In addition, directors should be available at short notice to address any urgent matters Demonstrate independence and the avoidance of conflicts of interest.A board that possess the skills to effectively perform the responsibilities can reduceoperational risk and mitigate the conflicts of interest that exist between the fund managerand the fund's investors. Institutional investors will evaluate the experience as part of theirown due diligence on the board members and determine if the directors possess therequired skill and have adequate time to meet their responsibilities.About Bell Rock GroupBell Rock’s mission is to enable hedge fund managers to demonstrate the highest level ofcorporate governance, which will assist managers to retain and enhance credibility withinvestors, regulators, distributors and the media.Our industry professionals have over 15 years of international finance experience with acombination of risk management, asset management, finance and legal qualifications. Ourexperience acting on the boards and our strong connections to the industry enables us towork with stakeholders from the very start to provide advice and recommendations onimplementing the highest standards of corporate governance.We are independent with no actual or perceived conflicts of interest that can sometimesarise with directors provided by other service providers such as law firms or administrators.Bell Rock’s industry experienced professionals can assist hedge fund managers byconducting a detailed review of the corporate governance aspects of their hedge funds andadvising on the appropriate solutions.

Bell Rock works in a collaborative manner with all stakeholders to implement industryrecommended corporate governance.Our professionals are authorised and regulated by the Cayman Islands Monetary Authorityunder the recent Director Directors Registration and Licensing Law, 2014. The Bell RockGroup is also regulated by CIMA under the Companies Management Law.Bell Rock is headquartered in the Cayman Islands and licensed and regulated by the CaymanIslands Monetary Authority (CIMA)For further information please feel free to contact us: [email protected]