The topic of corporate governance is not new. In Asia, interest
in corporate governance stepped up in the late 1990's following
the Asian financial crisis. However, with investment funds in the
region carrying smaller ticket sizes on average than compared to
their Western counterparts, Asian stock markets displaying lower
market capitalisations and a host of other geopolitical reasons,
this area has yet to mature such that standardised codes of conduct
are well practiced and commonplace. With scandals such as Madoff
and Weavering lurking in the wings, the question of corporate
governance is back in focus. The selection of independent directors
and the conduct of due diligence on them has now become a much more
structured process primarily focused on providing effective
corporate governance for investors rather than for just tax
There have been developments in recent years in 3 of the
region's most active centres for investment fund management. In
May 2012 Singapore issued its new and revised corporate governance
code including tighter standards for independent directors and in
the same year the Hong Kong stock exchange amended the Code of
Corporate Governance and Corporate Governance Report which included
amendments with respect to remuneration committees, board
independence and pay disclosures. Japan's first corporate
governance code came into effect on 1 June 2015. Whilst these
regulations do not apply to the regulation of non-listed investment
funds, they provide a framework for some of the standards that
might be adopted by the industry.
The Cayman Islands, one of the most utilised offshore
jurisdictions for establishing investment funds managed in Asia,
issued a formal response to the issues raised by the Weavering
case. The Statement of Guidance (SOG) issued by
the Cayman Islands Monetary Authority (CIMA) at
the end of 2013, following a formal private sector consultation
process, provided guidance on CIMA's minimum expectations for
sound and prudent governance of regulated funds.
Some general trends in Asia that we are seeing are:
-IndependentBoards. It is now
common to see at least one independent director sitting on the
fund's board and increasingly a majority of independent
directors. Without doubt, boards comprised of entirely or a
majority of investment manager representatives is no longer the
-Mixed service providers. The one stop shop
approach is less common. We are, for example, now unlikely to see
one provider being appointed as both trustee and administrator in
unit trust structures, as mangers are driven to show separation of
roles and that service providers are held fully accountable. Whilst
it is not common to see the fund and the manager appointing
separate legal counsel at the time of the establishment of the
fund, fund boards should consider whether it is appropriate to do
so when certain situations arise, for example, in the context of a
conflict of interest.
-Much more formality around fund governance.
Managers are best advised to provide for regular and structured
board meetings. Meetings held at least twice a year is now
considered a minimum standard although quarterly meetings are
recommended and more commonly adopted. We are also seeing better
documentation of board meetings.
-Conflicts of interest.Increased focus on
dealing with conflict of interest issues including around
disclosure to investors.
Competition in the asset management environment has forced
managers to react to the demands of investors and these demands, at
the most basic level, are looking for independent directors to sit
on fund boards, ones that will seek to uphold fiduciary duties and
ultimately the interests of the shareholders. The rise in demand
for truly independent, professional, skilled and non-apathetic
directors has clearly risen in the region and will most likely
continue to rise.
This article was first published by Funds Global
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