55% of investors wary of board’s effectiveness

Managers say the board is accountable to investors - but do the investors say the same?

According to Ernst & Young’s fifth annual survey of the global hedge fund market, global hedge fund managers and investors agree on key industry issues, but disagreement still exists in some important areas.

The report, which juxtaposes the views of managers and investors, indicates that the two groups differ on some important matters such as governance, fund expenses, administration, succession and capital raising.

Governance

Although managers and investors agree that independence is important for good governance, investors remain wary of boards’ effectiveness. Sixty-eight percent of managers say the board of directors is effective in carrying out its duties, but only 45% of investors agree. Three-quarters of managers say the board is accountable to investors, but only 38% of investors say the same.

In Asia, it’s a similar story. The managers display strong confidence with 85% of them agreeing in the board’s effectiveness in carrying out its duties. Eighty-five percent of the managers say that the board is accountable to investors.

Investors want greater board accountability; they desire board responsibility for investment guideline compliance (36%), reviewing and approving NAVs (29%), resolving disputes over valuations (19%) and setting risk policies and thresholds (38%). However, most managers (69%) say that they, rather than the board, currently have responsibility and accountability for compliance with investment guidelines, and 72% say they establish overall risk policy and thresholds.

Brian Thung says: “Investors still feel their Boards are most interested in serving the interests of managers, rarely challenging them on issues that really matter to investors such as valuations, risk and style drift. There is a need for a closer consensus with Boards acting neither as lap dogs nor dictators to the managers.”