The theme of corporate governance and effective board oversight within the alternative investment funds industry continues to be debated among investment fund boards, investment managers, institutional investors and regulators alike, with the latest guidance being published by the Central Bank of Ireland on June 16. A copy of the Industry Letter can be found here.
The Central Bank’s thematic review requested information from the industry regarding the number of directorships held by individuals on boards of corporate investment funds and fund management companies, and a review of the time allocated by individuals to these directorships. The purpose of the review was to assess the effect that a concentrated group of individual directors holding multiple directorships has on corporate governance.
The letter reiterates the Central Bank’s view that each board is expected to assess their effectiveness on an on-going basis, which includes a review of each individual’s ongoing time commitment. To that end, the Central Bank has prepared guidance to assist boards in carrying out that review.
The letter specifically highlights “High Risk Directors” as requiring additional considerations during that assessment process. High Risk Directors are those directors having aggregate professional time commitment in excess of 2,000 hours per year, including commitments to at least 20 fund boards. Once an individual reaches these thresholds, the Central Bank believes that there is a higher risk to the quality of performance to those boards by that individual. However, the Central Bank further states that they recognize that there are other factors that have to be considered to determine one’s continued effectiveness as a director; thus the stated thresholds are only guidance that needs further analysis once triggered.
Whilst the Central Bank’s guidance applies to investment funds and fund management companies domiciled in Ireland, the boards of other investment funds domiciled in other key jurisdictions should read the guidance and consider applying the general principals outlined therein when conducting their own ongoing assessment.