Cayman Islands: Former General Counsel And Current Independent Director Discusses The Importance Of Robust Fund Governance

William H. Woolverton recently joined the New York office of DMS Governance Ltd. (DMS) as managing director and head of U.S. legal. In this role, Woolverton has oversight of U.S. legal for DMS, along with senior responsibilities relating to DMS' U.S. business, and serves as an independent director on the boards of investment funds and related structures. Prior to joining DMS, Woolverton was senior managing director and general counsel at Gottex Fund Management, where he was responsible for managing fund administration and governance of all onshore and offshore funds and oversaw the management of external legal relationships. Previously, Woolverton spent over 15 years at Putnam Investments where he managed a staff of more than 100 legal and compliance professionals, and before that he was a senior lawyer at Alliance Capital Management Corporation.

The Hedge Fund Law Report recently interviewed Woolverton in connection with his move to DMS, during which he discussed the role of robust fund governance in the context of private funds.

For additional insight from Woolverton, see "ALM General Counsel Summit Reveals How Hedge Fund Managers Can Adopt a Robust Compliance Program and Address FCPA Risks" (Dec. 3, 2015); "What Should Hedge Fund Investors Be Looking for in the Course of Operational Due Diligence and How Can They Find It?" (Oct. 13, 2011); and "Fifth Annual Hedge Fund General Counsel Summit Covers Insider Trading, Expert Networks, Whistleblowers, Exit Interviews, Due Diligence, Examinations, Pay to Play and More" (Sep. 22, 2011).

For commentary from DMS' founder, see "Don Seymour Discusses Hedge Fund Governance and the Impact of the SEC-CIMA Cooperation Arrangement on Hedge Fund Manager Examinations" (Apr. 5, 2012).

HFLR: What motivated your move to DMS, and why is it happening at this particular stage of your career?

Woolverton: I joined DMS for several reasons. The first is that I really believe in the importance of robust fund governance for private funds and also of course for public funds. For many years, I have seen DMS take responsible fund governance very seriously. The other reasons I joined DMS include the rigorous training DMS provides to its employees so they will be effective fund directors, as well as the firm's technology platform that enhances the directors' abilities to focus on the key issues associated with fund governance.

In addition, I have been very impressed with how DMS has built a first-rate management company for Undertakings for Collective Investments in Transferable Securities (UCITS) and alternative investment fund manager offerings in each of Luxembourg and Ireland, primarily working with U.S. managers. In my career, I have structured many funds in both jurisdictions, so in my role with DMS, I will also get the chance to work on European product innovation and strategy, which is very appealing to me.

[See "Post-Brexit Cross-Border Marketing Options and the Viability of Domiciling Funds in Luxembourg (Part One of Two)" (Nov. 10, 2016); and "Domiciling Funds in Germany or Ireland to Access the E.U. Post-Brexit, the Possible Introduction of PRIIPs and the Rising Prominence of UCITS Structures (Part Two of Two)" (Nov. 17, 2016).]

As to why I've transitioned at this stage of my career, fund governance is personally very important to me. I arrived at the view that, in this new role, I can have a far more meaningful impact on fund governance by serving as an advocate for strong fund governance policy and articulating what it really means to be doing things the correct way as a fund director. I can do all of these things more effectively at a firm like DMS as opposed to being a general counsel or an attorney in a law firm, where fund governance would not necessarily be the primary focus of what I would be doing. This will really be the mission for the rest of my career.

HFLR: An independent director plays a role that perhaps might not be in such wide demand if regulations were clear and consistently enforced. Do you believe that fund managers and investment advisers receive sufficient guidance from the regulators?

Woolverton: If you think about the governance structure for publicly registered mutual funds in the U.S., or for that matter UCITS structures in Europe, there is a well-established set of expectations and indeed requirements for directors and trustees of publicly registered funds. Here in the U.S., they are set out in the Investment Company Act of 1940 (Investment Company Act). As a result, advisers don't have to spend a lot of time figuring out how to do things. Congress tells them in the form of the Investment Company Act, and the SEC promulgates rules under that act. Basically, the road map is very clear, and it's enforced by the SEC.

For private funds established in various offshore jurisdictions, the guideposts are perhaps less rigid than can be found under the Investment Company Act. This is the reason that private funds need strong governance and independent directors who are highly qualified to do their jobs.

Over the past 5 to 10 years, a trend has developed with larger institutions investing in private funds, whether hedge, private equity or venture capital funds. This trend reflects a shift in the demographics of private funds as compared to 15 or 20 years ago. Many institutional investors – who themselves represent people like teachers, police, firemen and pensioners – have been keenly focused on the importance of robust independent fund governance. [See "Dechert Global Alternative Funds Symposium Evaluates Liquid Alternative Funds and Fund Governance Trends" (Jun. 25, 2015).]

What I've seen for years is that, if an investment manager or sponsor of a hedge fund wants to raise capital, it has become more important for them to be able to say to investors, "I've got thoughtful directors, and a majority are independent." [See "SEC Chair Outlines Expectations for Fund Directors" (Apr. 7, 2016); and "PwC Benchmarks Alternative Asset Manager Governance Practices" (Oct. 5, 2015).]

The independence factor is important, and in a sense, it follows the framework of publicly registered funds in the U.S., where mutual funds are required to have a majority of independent directors. Institutional investors expect that the private funds that they invest in will have a board where a majority of the directors are independent from the investment manager.

HFLR: Do you find that regulations complicate or impede cross-border fund transactions to a greater extent than previously?

Woolverton: From the perspective of new regulation, I think there are a few things that have happened that create hurdles to fund launches, but I don't think they're insurmountable hurdles. For example, there are new compliance requirements that fund managers must be aware of, such as FATCA, and, if they are in Europe, the Alternative Investment Fund Managers Directive. [See "Six Challenges in Connection With FATCA Compliance by Hedge Fund Managers" (Mar. 13, 2014); and our series "Steps That Alternative Investment Fund Managers Need to Take Today to Comply With the Global Trend Toward Tax Transparency": Part One (Apr. 7, 2016); and Part Two (Apr. 14, 2016).] HFLR: Are your clients particularly attuned or sensitive to any recent rulings at the regulatory level? Woolverton: The whole subject of liquidity in private funds is, of course, a hot topic going back to 2008 when liquidity disappeared, hedge funds gated and there were many unhappy investors. If you follow the history of the regulatory consideration of the liquidity issue over the past ten years, however, it has culminated in the SEC's issuance of Rule 22e-4 under the Investment Company Act, which imposes liquidity requirements and constraints on mutual funds and ETFs.

[See "FSB Recommends Essential Risk Mitigation Requirements for Asset Managers" (Aug. 25, 2016); "Focus on Hedge Fund Managers and Market Liquidity May Be Overemphasized, Argues FCA Director" (Mar. 31, 2016); and "FCA Expects Hedge Fund Managers to Focus on Liquidity Risk" (Mar. 3, 2016).]

Hedge fund managers that are based in the U.S. and registered with the SEC under the Investment Advisers Act of 1940 need to consider whether the SEC could begin to think about imposing liquidity constraints on their hedge funds to prevent the gating issues we had in 2008 and 2009. Historically, the SEC has focused on protecting mutual fund investors. When it comes to private funds, they are less present because it is harder to invest in hedge funds. However, because the SEC is so focused on liquidity, and protecting liquidity in fund investments, it forces hedge fund managers themselves to think about liquidity issues more than in the past.

HFLR: Have the approaches or attitudes of fund managers changed along with the shifts in the regulatory environment?

Woolverton: I think that fund managers and sponsors are more attuned these days to the importance of launching funds that are really going to do what they say they are going to do and deliver the level of investment performance that is promised. This change extends, primarily, from 2008 and 2009. Prior to the 2008 global financial crisis, some fund sponsors may have been less rigorous in their back-testing analysis.

Does that mean it takes longer to get a fund to market than it used to? Perhaps. In the end, you're left with funds that are more successful with fewer surprises for investors, and I think that's a good thing. Managers have developed the frame of mind and the skills to be more protective of their own investors. All of that ties back to certain duties that fund managers and directors have to their funds that are grounded in common law concepts such as duty of care and basic fiduciary principles. [See "What Are the Duties of Directors of Cayman Islands Hedge Funds, and Should Those Duties Be Codified?" (Feb. 13, 2014).]

HFLR: What trends do you foresee with respect to hedge fund strategies and styles?

Woolverton: As the equity markets perform well, what you're going to see is that there are more hedge funds that are oriented toward equity investment, such as long-short hedge funds. As the equity markets go through downward cycles, what you'll be seeing are hedge funds that are not correlated to equity markets. You could see real estate funds, real asset funds or infrastructure funds, all making investments that are not necessarily correlated to the performance of capital markets themselves.

At least currently, the long-short hedge fund area is reasonably robust and credit strategies are doing reasonably well. Those trends change constantly, however, making it hard to generalize.

Previously published in The Hedge Fund Law Report

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions