Events over the past few years have put more power in the hands of institutional investors, so hearing their perspective on how best to develop long lasting future partnerships with managers at GAIM Ops Cayman was extremely valuable.
Demand for transparency have moved right to the top of the agenda on any discussion in this context. Delegates were asked how they responded to the increased requests and most said this was achieved by hiring more staff on the marketing and operational due diligence side. This is perhaps no surprise against the backdrop of increased regulation in the sector.
Operational due diligence meetings have become ever more important in terms of investors being able to get the most out of the process. Firstly it is key to ensure that all the right people are in the room. Delegates said they thought it was most important to have non-investment personnel, as well as staff from the operations side and senior management. There appeared to be hardly any desire from investment-related staff to be present.
For investors, there is a real need to strike a partnership with the manager, so they want managers to be open and provide access to what they need. “When we send out due diligence questionnaires we expect them to be completed,” an investor said, adding that of the 99 funds they invest in, only one refused to complete the forms.
In terms of the key questions that will come from investors, managers can expect to be quizzed on any senior departures and it is important to be transparent because the process will involve verification of information related to employment tribunals and one example uncovered how a CFO who left had actually had an unfair dismissal case. “This is a trust business. We don’t expect to find out everything but managers need to be open on critical and major issues,” commented an investor. “We want to do business with the managers and it can be useful to set up a call beforehand so there are no surprises in the meeting. Usually after the first call you know if a manager will be open to your requests and as you would expect, emerging managers tend to be more open in this process.” It was then added that managed accounts are the preferred structure because of the greater transparency and reduced counterparty risk.
From the fund of fund perspective, one investor said it’s good to have some element of surprise, but basic things like the NAV package shouldn’t be a surprise. Another concern investors want comfort on is that managers haven’t just copied their policy from one of their peers.
In concert with transparency demands, investors have been squarely focused on corporate governance and in particular the use of independent directors. One investor said the climate has now moved on to a preference for independent directors on the board from different firms.
This issue is in sharp focus in the UK and Ireland, notably with the UK CBI stipulating requirements for board directors and for operational effectiveness, there must be one person on the board that is responsible for how the board operates, as well as seeing directors step up and take their fiduciary duty seriously.