IPAF

Industry Professionals serving as non-executive directors to Alternative Funds

Views on Corporate Governance – as published in Kinetic Partners October 2013 bulletin

Caroline Hoare

Corporate Governance has become a hot topic in the hedge fund industry and it is almost certainly about to become the next big thing for private equity and real estate funds.

The reason for this is not hard to understand. Having been a topic totally ignored for many years, its sudden discovery is like a religious conversion.  Now everyone is a believer.  The persecution of the old gods is in full swing and previous faiths will be outlawed.

Is this fair?  Well, up to a point, Lord Copper.  The industry norm for many years was to have (usually) two perfectly competent independent or service provider directors plus the portfolio manager.  No one was paid much, if at all.  The whole industry knew this was how it worked and no one complained, so it would be unreasonable to expect funds to break the mould.

Now the pendulum is swinging the other way and investors are asking for better, totally independent directors and this can only be a good thing.  Ensuring that at least one member of a fund board has actually gained real experience of working hands-on in the industry should also be encouraged.  Not only will it make investors happy, but also they can add real value and assistance to the managers of the fund.

As for the salaries,  even the “expensive” directors are probably only paid about as much per diem as the fund pays its lawyers for a couple of hours’ work.

Cassandra speaks and, for once, believe her:  I predict that every fund in the alternatives space will be compelled to show a strong, committed and competent board in order to become successful and, while this is only one ingredient for success, it’s an easy one to achieve, so cast the old religion aside and embrace the new faith!

Caroline Hoare, Director, IPAF (UK) Ltd, email: caroline.hoare@ipafgroup.com