Corporate governance and transparency key issues for Charlotte Valeur at Brevan Howard
Charlotte Valeur, managing director of the Global Goverence Group and chair of Brevan Howard Credit Catalysts, has shared her views on how the hedge fund industry is tackling issues of governance and transparency.
Has corporate governance in the onshore/offshore hedge fund sectors improved as a result of latest EU regulatory requirements?
Yes, I do think they have.
The increased requirements are putting higher expectations and responsibilities on the governance bodies. That in turn has made many of the investment managers, fund lawyers and administrators take a closer look at corporate governance and start to implement necessary changes to achieve more efficient boards that can deal better with the increased regulatory requirements.
The individual directors are also feeling the pressure of them fully understanding the regulative environment and the changes that are being implemented. The directors who are finding all this very hard work seem to be falling away. Directors are now generally requiring more detailed information in the board packs and the packs are thus increasing in size and detail all the time. This again will deter a certain kind of director from being a director, and thus pave the way for directors willing to put in the necessary time and commitment. This in turn should lead to more efficient boards, which bring with them a higher improved level of corporate governance overall.
In your opinion, to what extent is corporate governance – or lack thereof – the driver of problems in the industry, and some of the more spectacular legal cases that have resulted?
The lack of good corporate governance in the hedge fund industry has in some cases been part of problems in the industry.
Some of the more spectacular cases were fundamentally fraud, which can be difficult to detect even for a very efficient board. However, a lack of independent boards and the old fashioned legal documents which gave the investment manager full control over the board of the fund – only shareholders with voting rights can hire and fire the board – were not helpful.
If the industry from the beginning had set up the funds with proper independent boards holding the necessary power to oppose unreasonable demands from the investment manager, then the crisis in 2008 would have seen different outcomes for some investors in some cases.
As it was, when many investors in 2008 wanted to withdraw their investments from the funds they were invested in, the investment managers asked the boards to sign off imposing gates, suspending NAV, etc, to avoid losing the capital.
Is transparency improving in the hedge fund industry, and if so how?
I would like to say yes definitely, but on average, that is not yet the case.
There has been little improvement in governance transparency within the hedge fund industry of unlisted hedge funds. Many of the large institutions are pushing for the funds they are invested in to disclose more of their corporate governance but very few, if any, have yet done so.
Having spoken to many large hedge fund managers about governance transparency they all say that if the investors require and ask for more transparency they will provide it.
One of the first places investors have pushed especially hard to get transparency is directly with the directors of the fund boards to disclose their directorships or the number of other directorships they hold. This is to avoid having overstretched directors on the boards who do not have sufficient time to devote to each individual fund.
This has been strongly opposed by some directors (possibly the ones with too many directorships) and the discussion continues. Other directors are happy to be fully transparent with their other commitments to make the investors comfortable that they have the necessary time commitment to fulfill their obligations. Some directors who are happy and compliant with the investors’ demands have joined forces to create one place to get access to such directors – HedgeDirector, for example.