Independent Hedge Fund Directors: Bravo to Mike Powell of USS

One of the biggest concerns in investing in a hedge fund is the risk the manager does not keep to his mandate in investing and maintain operational infrastructures to prevent fraud. These concerns should be mitigated by the independent hedge fund directors. Mike Powell of USS has been highlighting this point recently in publications and articles. He is absolutely correct in his sentiment and his rationale conclusion that the quality of independent directors needs to improve. Practically this means an independent director must be experienced enough to analysis the strategy the manager of the hedge fund executes in order to assess whether they have kept to their mandate and have maintained sufficient controls to safe guard investors. On the latter issue I would suggest that valuation of investments is the most complex area that needs to be monitored. Unfortunately there are few independent directors that have the required knowledge to execute their duty of care. Independent directors are a closed club of individuals who either are just looking for a retirement salary or who only care about their fee and so take on far too many independent directorships. To this end a transparent register, as Mike Powell has suggested, will mitigate the over loaded director.  Independent directors tend to be recommended by administrators who lack the knowledge to assess whether the independent director is capable to execute his responsibilities. This role, which so many investors and managers alike seem to devalue, is key in building an industry that can be trusted and limit the amount of frauds like Madoff and Weavering Capital the industry has to experience. Hedge fund managers must embrace this role, make sure that the independent directors on the board of their fund are capable to challenge them. The result will only be a positive to their fund. It is for hedge fund mangers to drive this change as well as institutional investors. If you are new hedge fund manager or an established manager launching a new fund I challenge you to ensure the quality of your independent directors. If you do not know how to source these individuals contact me and I help.