We're bringing you bite size insights and a fresh point of view on current legal trends and forces shaping the market for those doing business with the Cayman Islands. Read our latest post below.
Continued focus on corporate governance with established solutions now commonplace
As we continue to work on new investment fund launches, consistent themes have emerged when it comes to board composition for investments fund structured as companies. We are also seeing creative solutions used for funds that are structured as partnerships, and the issue of governance is increasingly becoming an area of focus when clients decide whether to use a company or a partnership.
Key trends are:
- Independent boards: typically made up of two independent directors and one director from the manager.
- Mixed boards: where the independent directors come from different director service providers.
- Due diligence in selecting the board: managers increasingly explore different options, and conduct thorough due diligence on directors including detailed face to face or phone interviews. There is a growing choice of independent directors in the market, ranging from leveraged models with an institutional infrastructure, to niche providers.
- Corporate governance formality: most funds now have regular structured board meetings and many have governance manuals in place. In part this derives from the Cayman Islands Monetary Authority's Statement of Guidance on Corporate Governance for Regulated Mutual Funds.
Many of these approaches have long been adopted by larger managers but our extensive work with start-up managers confirms that the same standards are now expected for investment funds across the spectrum.
In the context of partnerships, the issue is highlighted in a typical master-feeder structure, where it is common to use a partnership for the master fund. Investors recognise that trading occurs at the master fund is, and independent oversight at this level has become increasingly important to them.
Some solutions for creating independent oversight for partnerships are:
- establishing the general partner of the partnership as a Cayman company with its own independent board;
- where the general partner is a Delaware LLC (which is the more normal approach for US managers), establishing an advisory committee or review committee matching the board at the feeder level, or creating more formality around the general partner itself with a more detailed operating agreement and decision making resting between the principal of the investment manager, and then two independent persons.
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