Covering topics of: CDD, Data Protection, Voice Recording, Short Selling and other fund matters Applicable to: each financial industry sector, investment businesses, funds and fund services businesses These unprecedented circumstances …
Common Failings in the Funds Sector: J-NED Seminar, January 2019
It was a pleasure for Oben to present at the J-NED seminar on the topic of common failings in the Funds sector.
Our interactive discussion with the audience captured a number of important issues and identified points we consider any non-executive director should have in mind before and/or during their appointment.
We grouped the issues under three main headings namely, constitutive documents, corporate governance and operational matters. We have supplemented our own points with those raised by members of the audience whom we thank for their valuable and interesting contributions. What we set out below should not be considered to be exhaustive. We are in no doubt that readers of this paper will be able to add to the points we have listed.
- Are they unnecessarily complex and lengthy tomes?
- Before taking appointment, have you had time to properly consider the constitutive documents?
- Is there a ‘bible’ of documents available to you, are they mapped to the fund and kept up to date?
- Is the prospectus adopted flexible enough to accommodate market changes?
- Is the subscription wording concise – are there checks and reviews in place to ensure investors meet and continue to meet subscription requirements, rather than merely relying on the promoter?
- If there is a proposed change to the investor group, how easy will it be for the board to ensure adherence to the subscription requirements?
- Do you have a clear and concise understanding of the structure of the fund including any underlying SPVs, parent companies and functionaries?
- Has the business model been stress tested?
- Do you have sufficient time to consider board packs?
- Ensure the functionaries of the fund, including the investment manager and custodian of the fund are monitored and adhere to any guidelines and restrictions applicable to them.
- Do not get confused over who the client is and ensure there is a clear distinction between the investors and the promoter/investment manager.
- Guard against dominant directors (or groups of directors with an identity of interests) and their influence over other directors and investment decisions.
- Ensure that economic and other pressures do not influence your decision whether or not to accept an appointment.
- Ensure you are fully aware of any potential conflicts of interests in the fund structure particularly where one person is a director of both the fund and the investment manager or administrator.
- Ensure the conflict of interests policy is robust and implemented.
- Are board meetings focussed – is too much time spent on the minutiae?
- Is the Business Risk Assessment fit for purpose, is ongoing monitoring bespoke to the fund and is the management information presented focussed and relevant?
- How does the board interact? Proactively manage and review board performance.
- Ensure the remuneration structure for the directors and all functionaries is aligned to the performance of the fund. Avoid the situation where the functionaries prosper whilst the fund’s performance dips.
- Ensure that applicable due diligence has been undertaken on any payments to third parties and the rationale for payments is clear and documented.
- Have you undertaken requisite due diligence on functionaries and the other officers to the fund? Ensure that functionaries, including compliance officers and MLROs are competent to undertake their roles.
- Ensure pricings and valuations are undertaken properly – monitor these figures and ensure the fund is performing as anticipated.
- Does the board possess a sufficient knowledge of the asset class and of the jurisdictions the fund is operating in?
- How are the different legal and regulatory requirements of the different jurisdictions in which the business operates being adhered to?
- Ensure any redemptions and redemption requests are undertaken in the proper manner with gating enforced where required.
- Ensure minutes of meetings are recorded in an appropriate and proper manner, accurately reflecting the contents of the meeting – don’t be afraid to work through a number of drafts and be disciplined in your control of personal notes of meetings.
- Auditors – pay careful attention to letters of representation and be cognisant of the limitations of an audit.
We hope the above provides some points worthy of consideration. As ever, we would be pleased to discuss any point in further detail and welcome any further input. Please, therefore, do not hesitate to contact a member of the Oben team with any queries or if you consider we may be of assistance.