Corporate Governance Best Practices for Cayman Islands Hedge Funds

With the financial crisis of 2008 and 2009, corporate governance practices in the global alternative investment funds industry came under the microscope.  While investor views on how fund directors performed during the crisis vary, what is clear a few years on is that investors, hedge fund managers and service providers have a much better understanding of the role of an independent non-executive director of an alternative investment fund and that a best practice framework has started to become a topic for active discussion in the industry.  As a result, hedge fund investors – particularly institutional investors – are increasingly scrutinizing a fund’s corporate governance structure to ensure that the directors are diligently and skillfully performing their duties in the best interest of the hedge funds on whose boards they serve.  With the global hedge fund industry having its largest presence in the Cayman Islands, this guest article looks at some of the issues relating to corporate governance from the Cayman fund perspective.  The authors of this guest article are Tim Frawley, a Partner in the Investment Funds practice of Maples and Calder, and Peter Huber, Global Co-Head of Maples Fiduciary Services.  Frawley and Huber begin with a historical accounting of Cayman company fund governance.  The authors then explain the various duties owed and roles performed by fund directors.  Next, the authors discuss the findings and implications from the Weavering Macro Fixed Income Fund Limited (In Liquidation) decision handed down last year.  The authors then move to a survey of some current hot-button issues related to fund governance, and conclude with a discussion of anticipated fund governance challenges facing hedge fund managers.

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