GAIM Ops Cayman: Hedge funds urged to hold AGMs

10 Apr, 2014

Hedge fund managers should hold annual general meetings (AGMs) or publish declarations on a yearly basis confirming their funds are being run according to the prospectuses

“I fully endorse the return of AGMs for hedge funds although this is likely to be seriously challenged by members of the legal and investment management community. I believe it would be a positive development if investors can question directors at such meetings,” said Bill Jones, founder of ManagementPlus, a professional services firm, speaking at GAIM Ops Cayman.

Daniel Summerfield, co-head of responsible investment at the Universities Superannuation Scheme (USS), acknowledged hedge fund AGMs would be a good idea but conceded the likelihood of this actually happening was remote.

It is also likely directors would cite client confidentiality in order to avoid holding AGMs.

Corporate governance standards at hedge funds have frustrated institutional investors, many of whom believe directors are providing suboptimal services. A survey of the hedge fund industry by the Cayman Islands Monetary Authority (CIMA), which is attempting to push through corporate governance reforms, revealed significant investor concerns about transparency among directors. Half of the investors surveyed complained they received no information from directors about board numbers, which predictably fostered concerns about independence, conflicts of interest and questions about capacity.

Nonetheless, there is a possibility directors could provide investors with a certificate attesting the fund is being run properly and that there has been no style drift. “I believe directors should provide investors with a statement confirming the fund is being run according to the strategy investors bought into. This will enhance and bolster transparency in the industry,” commented Summerfield.

A survey of operational due diligence professionals by Deutsche Bank confirmed interest in corporate governance among institutional investors was growing. Thirty-four per-cent of allocators told Deutsche Bank they will devote more resources to reviewing corporate governance practices at hedge funds, while nearly a quarter acknowledged they had vetoed an investment due to a lack of independent governance.

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