SECURING GOOD GOVERNANCE


Good corporate governance is an essential element of any successful fund. Cayman Funds spoke to Greg Robbins of Mesirow Advanced Strategies about the best approaches.


What are the challenges companies typically face when trying to ensure good corporate governance in Cayman? There is nothing particular to Cayman or any other jurisdiction that


presents challenges to establishing good corporate governance. Instead, in our view, the challenges to good corporate governance arise largely because some fund managers and their service providers prefer weak corporate governance, because they believe it favours the fund manager.


For example, our experience is that some US-based law firms advise


managers to use weak directors because those directors are less likely to challenge the manager. That may make sense for those law firms, whose fiduciary duty is to the manager, but it doesn’t make sense for the investors in those managers’ funds.


What are the best strategies to ensure that investors can be confident in your governance structures? Because the really difficult issues that directors may face can vary so


widely, we believe a manager should hire directors who are known for (or 44 CAYMAN FUNDS | 2012


can demonstrate) that they are inquisitive, involved, and take seriously their responsibilities and fiduciary duties to investors. Managers should encourage their investors to speak with the fund’s directors to confirm that the directors know the manager and the manager’s funds.


Managers should not ask nor permit the directors to delegate their


responsibilities to the manager. Managers should make sure their offering and marketing documents state clearly that the manager expects the directors to be actively involved and to act in the best interest of the shareholders.


At what point in the set-up of an investment vehicle do you need to address governance? Well before the manager has determined what the terms will be and,


in particular, the terms relating to difficult issues such as side pockets. We constantly hear managers justifying the terms in their documents by saying that the terms are there because the manager’s lawyers told the manager that the terms were market—even when those terms are unfair to shareholders. That immediately causes us to lose faith in the manager and the directors of the fund.


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