Standardised board agenda produced for alternative investment firms

Out-Law News | 13 Nov 2019 | 4:28 pm | 1 min. read

Alternative investment fund directors should incorporate declarations of conflicts of interest and discussion of cyber security and environment, social and governance (ESG) issues into their board meetings, according to updated guidance.

The Standards Board for Alternative Investments (SBAI) has published an updated version of its standardised board agenda, which forms part of its 'toolbox' of guidance materials for managers of and investors in funds. The agenda, which was first published in 2014, is intended to give guidance to fund directors, managers and investors on issues relating to fund board meetings, such as topics they should be addressing and documentation they should be producing.

The update follows increased investor scrutiny of fund governance arrangements, and the introduction of strengthened governance rules in jurisdictions including the Cayman Islands, Ireland and Luxembourg, according to the SBAI.

Bell Alice_November 2019

Alice Bell

Senior Associate

The SBAI's agenda gives members confidence that their approach to governance at board meetings meets current market standards at an international level.

The SBAI, formerly the Hedge Funds Standards Board, is the global standards-setting body for the alternative investment industry. It is supported by over 200 alternative investment managers and institutional investors, responsible for a combined $4.5 trillion worth of assets under management.

Financial regulation expert Alice Bell of Pinsent Masons, the law firm behind Out-Law, said: "We have already seen more stringent governance requirements implemented for managers, and those changes have now trickled down to fund level".

"The SBAI's update is a response to a growing trend for regulatory scrutiny and action, and investor demands, in this area globally," she said.

The governance arrangements of investment funds should address conflicts of interest that can arise between a fund manager, the funds that they manage and the investors in those funds, according to the SBAI. For this reason, it has proposed incorporating a declaration and review of fund directors' conflicts of interest into the board agenda, as well as a review of 'structural' conflicts of interest, such as conflicts between different funds which are managed by the same manager.

The fund manager's report to the management or executive committee should now be reviewed as part of the board agenda, including resourcing, infrastructure or system changes, key hires and departures and new product or location launches, as well as any issues and concerns. The SBAI also recommends incorporating a more thorough review of the fund's audit arrangements into the board agenda, including an at least annual assessment of auditor independence and a review of any non-audit services provided by the auditor.

The SBAI has also recommended that senior investment team members update the board on ESG and responsible investment-related issues as part of their verbal report, along with updates on performance, strategy, markets, challenges and opportunities.

"We are at the beginning of a sea change in regulator and investor focus on ESG matters," said Alice Bell. "The SBAI's agenda gives members confidence that their approach to governance at board meetings meets current market standards at an international level."