practical risk considerations for fund directors antonio thomas, partner managementplus group
TRANSCRIPT
Practical Risk Considerations for Fund Directors Antonio Thomas, PartnerManagementPlus Group
Agenda
• What Can Go Wrong?• Issues facing fund Directors under AIFM• Practical Suggestions
Page 2
What Can Go Wrong?
Recent case: Weavering Macro Fixed Income Fund Limited (Cayman)Hedge Fund masking trading losses via fictitious swaps with related party (c. $450M).
• Grand Court in Cayman held (2011) that WMFIFL directors were guilty of wilful neglect or
default.
• The Court restated existing law and practice that directors must:
– Take an active role in supervising the fund's affairs and its business.
– Apply their minds and independent judgement to the decisions they make and to
the documents the fund's service providers ask them to sign.
– Perform their duties in an active, diligent, inquisitorial and professional fashion,
applying their own independent judgement in a business like manner.
– Develop and implement appropriate procedures that enable them to carry out their
functions (and to demonstrate that they have done so).
Page 4
Issues Facing Fund Directors under AIFMD
Issues Facing Fund Directors under AIFMD
• Who should sit on the board of AIF and why are they there
• Responsibilities of AIF vs AIFM
• Who has the ultimate responsibility
• How is that translated in day to day oversight
• How is that documented
• Who has the final decision (valuation, risk etc.)
Page 6
Current debates in the Fund business
• Responsibilities of AIF vs AIFM (valuation who has the ultimate responsibility, MLRO where does it sit)
• AIF Board Composition (independent vs in-house or mix inc. AIFM)
• Competencies, specific experience, availability and location
• Physical Board meetings vs Circular Resolutions, frequency
• Oversight, who does it and what level (AIF Board or AIFM, 3rd Parties)
• Role of Depositary
Page 7
Practical suggestions
Tools for defining the Role of the Director
• TOR - summary of the board’s scope and responsibility vs other bodies e.g Audit, Investment, Valuations Committee etc
• DSA – Directors Service Agreement for each member including scope • Reporting – board packs, intra board meeting reporting, liquidity, monthly
investment managers report
• Official Fund documents• PPM• Regulatory reporting • Passporting notifications • Shareholder documentation• Reporting accounts • Valuation policy
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Conclusions
• Understand your obligations in the specific context
• Establish clear boundaries between AIF Board and AIFM
and escalation procedures
• Be active and engaged with sponsor and AIFM
• Identify and use various resources on corporate
governance and risk reporting
• Try to anticipate crises and have an established protocol /
procedures to deal with them before they happen where
possible Page 10
