Proper fund governance has long been championed by leading offshore law firm Conyers Dill & Pearman, which for the last decade has encouraged its hedge fund clients to hold at least annual directors meetings. Initially this was met with some resistance according to Robert Briant (pictured), Partner and head of Conyers’ BVI office, who confirms that such resistance has softened over the last few years.
“Even though there is no requirement in the BVI for the directors to meet annually, they do meet and are happy to meet when we suggest it. So that is a positive change. Some funds are looking at other jurisdictions, where directors are required to meet three times a year, and adopting that as their new model,” says Briant.
Global regulation in the form of FATCA, this year’s introduction of the OECD-led Common Reporting Standards, AIFMD, etc, has placed much greater emphasis on good governance and required directors to up their game. This, says Briant, is helping to improve the quality of the hedge fund industry.
“Broadly speaking, managers are adopting higher standards because investors demand it. Whether it’s getting director approval on a matter, or having directors’ meetings where the fund’s auditor and administrator attend and are asked specific questions, etc, the difference to 10 years ago is dramatic. What’s driving this is a combination of regulation and investor behaviour,” says Briant, who confirms that there is more willingness among BVI hedge fund managers to appoint a mix of directors to the board with complementary skill sets.
“I have seen directors with different backgrounds being appointed in a split board arrangement where they are the majority of the directors. I haven’t seen multiple directors being appointed from the same shop. That has become much less common,” he adds.
Unlike some other fund jurisdictions, the BVI does not have a culture of `jumbo directorships’ where individual directors sit on large numbers of funds.
As the quality of governance increases in the BVI and more hedge funds appoint independent directors there is no immediate sign that a registration database (which was adopted in the Cayman Islands) will come into force. As Briant observes: “The directors I am familiar with that sit on my clients’ boards are on perhaps 10 boards in total. They do not sell directorship services as quickly or readily. We are loath to adopt regulation in the BVI when there is no need for it.”
Separately though, from a corporate perspective, to improve transparency and enforce anti-money laundering policies, the BVI recently instituted the requirement to file privately a register of directors with the Registrar of Corporate Affairs. Filing of the register of directors will come into full force on 1st April 2017.
“The Registrar has a database of all BVI corporate directors for KYC purposes, for policing by onshore tax authorities and regulators. It is not going to be used for legislative purposes on how to run hedge funds like the DRLL in Cayman,” explains Briant. “From a hedge fund perspective, the BVI does not prescribe detailed corporate governance requirements. BVI private and professional funds are set up for sophisticated investors. They require some disclosures but after that it is really caveat emptor. I think that’s the correct model. These are not products that are sold to the public. I think we have the right balance from a governance perspective.”
