CIMA reviewing corporate governance
(CNS): According to a report in the fund industry magazine HFMWeek, the Cayman Islands Monetary Authority (CIMA) has been conducting a review of the corporate governance framework for all regulated sectors, including hedge funds. The magazine states that the review is believed to be the result of a letter-writing campaign on behalf of institutional investors and asset allocators, started in June by US-based Mesirow Advanced Strategies, a fund of hedge funds (FoHF) firm. Although detail on the process is currently hard to come by, HFM said the review shows corporate governance is an issue with which the hedge fund industry still has unfinished business.
“Issues being examined include, but are not limited to, composition of boards, fitness and propriety, and transparency,” a CIMA spokesperson told HFMWeek. “As part of this process, we have been in dialogue with stakeholders on various aspects of the issue. This dialogue will continue.”
Gary Linford, managing director at HighWater, a Cayman-based company specialising in governance services,told the industry magazine that while the Cayman industry talks about this transparency initiative, certain fiduciary investors are not as patient “with the lack of progress” and are asking more intrusive questions on corporate governance. “There is definitely a more activist approach taking hold and I would suggest this will continue, and will be significantly aided if CIMA proceeds with the transparency initiative,” Linford added.
Greg Robbins, general counsel at Mesirow Advanced Strategies, is the author of the original letter to CIMA which is credited with prompting the review.
“Our focus is on two forms – MF1 and the Far (Fund Annual Return) form,” he explained. “These two forms contain a lot of information about funds and in particular fund service providers, and if CIMA talks to the manager community and the manager community agrees there’s no harm in providing that service provider information then we think it would be valuable to be shared with the hedge fund community as a whole.”
Having informed a number of investors and asset allocators of his intentions, the letter has been followed by a steady flow of follow-ups to CIMA, the magazine reported. Linford, who is also a director of one of Mesirow’s vehicles, said there had been at least eight follow-ups from large fiduciary investors, each backing the same calls for greater transparency but the total number of follow-ups is rumoured to be much higher.
A professional independent director, Linford currently has 46 relationships as a director, 27 of which are with hedge funds. He considers himself at or very near full capacity. As for the Cayman average, he estimates that the typical range for a Cayman director is 25-75 directorships, but admits the overall range is “huge”.
“It’s a monkey on CIMA’s back,” Linford said. “The industry is growing and with certain hedge funds having had run-ins with other regulators or with disgruntled investors, CIMA will continue to be criticised for not addressing the issue of excessive directorships with that section of the industry that equates a high number with problem issues.
“I think the issue of excessive directorships is overplayed and in my opinion the term ‘excessive’ will eventually only apply to small number of individuals, perhaps less than five,” he adds. “That said, the term ‘excessive’ is subjective and if someone deems the right number to be ten, then you will find many people fall within the definition.”
Don Seymour is the managing director at DMS Management, a Cayman-based director services firm. He admits that following the finical crisis of 2008, “questions are now being raised about director capacity,” but believes those queries have been answered by the event itself. “If Cayman directors were truly over-capacity from serving on hundreds of funds, their failures would have been exposed during the crisis,” Seymour told HFMWeek.
Two local directors had actively solicited support from a few FoHFs to advocate for the implementation of a public hedge fund database in Cayman, but, according to Seymour, faced a muted response. “It was widely accepted that disclosing private fund or personal information to the public served no value and merely exposed the fund and its associated individuals to unnecessary risks such as fraud.”
Linford believes that the topic of transparency still divides the Islands. In July 2009, he recalls, the industry within Cayman could not find consensus on a policy initiative on transparency as it related to disclosing the number of directorships. “While there now seems to be a growing agreement that more transparency is needed, there is no agreement on the level of such transparency.”
According to the magazine, Cayman is rumoured to be readying a solution which will be ready for publication by the end of the year.
Category: Business
in.dus.try.
hedge.fund.industry.
Primarily manufacturing hedges, trimming hedges, finding hedges, etc. Principal product hedges.
This is a welcome move from CIMA, if rather late in the day. There has been a dire need to regulate directors for decades but conveniently overlooked by those who gain most. Over the past four or five years there has been numerous mentions in the US courts and the press of the poor performances and in several cases wrongdoings of Cayman directors including some resident on the island.
What the article misses out on is the need to regulate ALL directors no matter whether the entities of which they are directors are CIMA licenced or otherwise. With less than 15,000 CIMA entities and over 80,000 companies in all that leaves the vast majority outside the ambit of CIMA. It cannot be right to impose regulation on directors of CIMA regulated entities and ignore the others. Of course no one has explained yet how trustees of regulated unit trusts will be regulated but perhaps someone will think of this eventually.
Directors of commercial entities such as contruction companies, tourist related companies, retailers and above all developers need director regulation just as much as CIMA related entities. The entire ambit should have been addressed by the AGs office decades ago and the formation of a office of a Director of Public Prosecutions should have been up and running long ago coupled with a Directors’ Disqualification law. The problem is that there are too many vested interests.
I will not dwell for too long on the number of directors held by some in the hedge fund business but with one person holding over 400 it makes a mockery of the business. Obviously the number of directorships held depends upon their nature.
Missing entirely in the article is the need to outlaw indemnities. This practice was introduced decades ago and cannot be right. Articles of Association are drawn up to protect creditors and stakeholders, not directors.Conversely it has been banned in most jurisdictions using derivatives of UK companies law, the most recent being Guernsey some three years ago.It is not right that a negligent or reckless director cannot be held accountable. Until this problem is fixed we will lie behind our competitors.
Finally the current companies law based in parts on the English 1862 law needs serious revision to accommodate modern day need for increased transparency.There is no better time than the present as Cayman becomes more and more under the microscope.
More regulation is not the answer but picking up on your protection of creditors theme, some modern rules should be laid down for insolvency practitioners to prevent abuse. Charging NY rates for local work makes a mockery of that business.
The existing laws are archaic and prevents insolvency practitioners from pursuing wayward directors. We have no directors’ disqualification laws and no Public Prosecutor so what can be done. This needs to be fixed and quickly. Government can always appoint some consultants as seems to be their want.
We need directors disqualification proceedings in order to regain credibility. It is not how many directorships one has, it is what one does with them that matters.