Hedge Fund Governance - 1st Edition - ISBN: 9780128014127, 9780128025123

Hedge Fund Governance

1st Edition

Evaluating Oversight, Independence, and Conflicts

Authors: Jason Scharfman
eBook ISBN: 9780128025123
Paperback ISBN: 9780128014127
Imprint: Academic Press
Published Date: 21st October 2014
Page Count: 384
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Description

Hedge Fund Governance: Evaluating Oversight, Independence and Conflicts summarizes the fundamental elements of hedge fund governance and principal perspectives on governance arguments. An authoritative reference on governance, it describes the tools needed for developing a flexible, comprehensive hedge fund governance analysis framework. Case studies and interviews with professional fund directors shine a bright light of pragmatism on this framework. The author’s global analysis of more than 5,000 hedge fund governance structures enables him to draw realistic conclusions about best practices. He also explores the value consequences of good vs. bad governance, estimating the actual dollar losses that can result from bad governance, as well as the operational and investment performance benefits of certain governance practices.

Key Features

  • Presents methods for evaluating qualifications, conflicts of interests, fees, obligations and liabilities of hedge fund Boards of Directors.
  • Explains techniques for developing a hedge fund governance assessment program, including analyzing legal documentation analysis and financial statements for governance related information.
  • Uses case studies and example scenarios in hedge fund governance successes and failures to explore investor governance rights and fund manager responsibilities in onshore and offshore jurisdictions.

Readership

Upper-division undergraduates, graduate students, and professionals working in hedge funds, financial institutions, corporate governance, and industrial organization

Table of Contents

  • Dedication
  • Biography
  • Preface
  • Chapter 1: Introduction to Hedge Fund Governance
    • Abstract
    • Introduction to the concept of governance
    • Why should investors care about hedge fund governance?
    • Governance: a vague concept?
    • How should investors think about hedge fund governance?
    • What hedge fund entities are investors looking at to promote good governance?
    • Distinguishing between governance and due diligence
    • Is governance controlled by the hedge fund board of directors?
    • Governance outside of hedge funds
    • The origins of hedge fund governance lie in corporate governance
    • Historical perspectives on corporate governance
    • Investor-driven governance
    • Defining hedge fund governance
    • A universal definition of governance?
    • Is governance defined by perspective?
    • Who is responsible for hedge fund governance?
    • Is governance primarily an investment-related concept?
    • Distinguishing between governance and hedge fund activists
    • Hedge fund governance: a working definition
  • Chapter 2: Hedge Fund Board of Directors: A Governance Proxy?
    • Abstract
    • Introduction to the hedge fund board of directors
    • Are vitriolic director criticisms merited? Clarifying a modest proposal
    • Understanding hedge fund board structures
    • Offshore versus onshore hedge funds
    • Different types of hedge fund boards
    • Clarifying director terminology
    • A brief history of hedge fund directors
    • The forgotten master fund board
    • Who are these board members?
    • The expanding director talent pool—a blessing and a curse?
    • Who decides who gets to be on the board?
    • You’re not who I hired!—the “associate director” bait and switch?
    • Director compensation—a double standard?
    • What do directors actually do?
    • Director liability—a few words about indemnification
    • Director delegation
  • Chapter 3: Regulatory Governance of Hedge Funds
    • Abstract
    • Introduction to regulatory governance
    • A few words on what this chapter doesn’t cover
    • Why so many jurisdictions?
    • Why the increased focus on the importance of offshore regulations?
    • Leading hedge fund regulators
    • Perspectives on global hedge fund regulatory development
    • How do regulations relate to governance?
    • Key fund regulations and their effects on governance
    • Hedge fund regulatory governance in other jurisdictions
    • Conclusion
  • Chapter 4: The Role of Fund Service Providers in Implementing Governance
    • Abstract
    • Introduction to hedge fund service provider governance
    • Are some service providers more important to governance?
    • Isn’t casting a broader net better?
    • Are “ancillary” service providers important in evaluating governance?
    • Common hedge fund service providers
    • Isn’t service provider governance simply fund operations?
    • The administrator’s governance role
    • Custodian and prime broker governance
    • Additional comments on fund directors and governance
    • Gauging individual service provider quality and weight in external governance
    • Conclusion
  • Chapter 5: Hedge Fund Internal Governance Mechanisms
    • Abstract
    • Introduction to hedge fund governance mechanisms
    • Why are hedge funds now talking about governance?
    • Is the JOBS Act good for hedge fund governance?
    • Does enhanced flexibility promote better governance?
    • Is technical compliance enough for good governance?
    • I said governance, didn’t I?
    • Governance mechanism classification challenges
    • Hedge fund internal governance by committee?
    • Hedge fund capacity as a governance indicator
    • Third-party operational control audits as governance proxies?
    • Conclusion
  • Chapter 6: Developing a Framework for Investor Analysis of Hedge Fund Governance
    • Abstract
    • Introduction to developing governance analysis frameworks
    • Do strong operations imply good governance?
    • Is governance a moving target?
    • Institutional investor governance: the CalPERS model
    • Classifying governance analysis into two camps: investment and operational
    • Developing a governance program
    • Understanding governance evaluation standards
    • Beginning governance assessments
    • Analyzing director governance
    • Governance analysis of service providers continued
    • Governance analysis continued—audited financial statements examples
    • Governance analysis continued—business continuity examples
    • Information technology governance reviews
    • Conclusion
  • Chapter 7: Investor Activist–Driven Governance and Ongoing Monitoring
    • Abstract
    • Introduction to ongoing monitoring and activist-driven governance
    • Do ongoing governance evaluations add value?
    • Ongoing governance monitoring information decay considerations
    • Developing an ongoing governance monitoring program—a meta-analysis program?
    • Beginning ongoing governance assessments
    • Ongoing governance monitoring—information technology examples
    • Bonus board governance oversight bonanza? Don’t worry, we’ve hired someone for that
    • Ongoing background investigation and news monitoring for funds, personnel, and directors?
    • The good guy problem: do “house views” result in weakened ongoing governance oversight?
    • Fast and furious—increasing governance monitoring frequency through shallow dives
    • Governance activism
    • Alternative activism in action ESG, SRI, and faith-based investing
    • Conclusion
  • Chapter 8: Case Studies and Example Scenarios in Hedge Fund Governance
    • Abstract
    • Introduction
    • Case studies
    • Example scenario: “the Sark Lark”—are certain jurisdictions’ regulatory governance regimes completely ineffective?
  • Chapter 9: Analyzing Governance in Fund Valuations
    • Abstract
    • Introduction to analyzing governance in fund valuations
    • What does valuation have to do with governance?
    • Hedge fund valuation governance considerations
    • Service provider valuation governance considerations
    • Historical perspectives on hedge fund valuation governance—the Lipper example
  • Chapter 10: Field Perspectives on Governance—Interviews With Those Involved in Various Aspects of Hedge Fund Governance
    • Abstract
    • Interview with Ms. Heather Smith, Cayman Islands Monetary Authority
    • Interview with Mark Cook and Geoff Ruddick (International management services ltd.)
    • Interview with George Bashforth of Appleby Trust (Cayman) Ltd
    • Interview with Ingrid Pierce of Walkers Global
    • Interview with Professor Joe Bannister and Dr. Chris Buttigieg of the Malta financial services authority
    • Interview with Adam Cohen of Perella Weinberg Partners
    • Interview with Louis Rodriguez (operational due diligence professional)
    • Perspectives on transparency: additional interview comments
  • Chapter 11: Good Governance in Bad Situations: Understanding Governance During Fund Turmoil and Liquidations
    • Abstract
    • Introduction
    • Background on fund liquidations
    • Is a closure and a liquidator the same thing?
    • Common reasons hedge funds close
    • Governance perspectives on liquidations
    • Conclusion
  • Chapter 12: Trends and Future Developments
    • Abstract
    • Introduction
    • The diligence governance correlation
    • Continued expansion of the definition of hedge fund governance
    • Increased implementation of boards where they are not mandated by law
    • Regulatory database management of board of directors
    • Increased regulatory scrutiny and prosecution of governance-related issues
    • Increased director reporting but not necessarily meaningful transparency
    • The future rise and fall of annual governance meetings (“AGMs”)
    • Increased focus on director disclosures to investors
    • Increased focus of director conflict management
    • Global governance codes—a self-regulatory pipe dream?
    • Further broadening of scope of director services
  • Index

Details

No. of pages:
384
Language:
English
Copyright:
© Academic Press 2015
Published:
Imprint:
Academic Press
eBook ISBN:
9780128025123
Paperback ISBN:
9780128014127

About the Author

Jason Scharfman

Jason Scharfman

Jason Scharfman is the Managing Partner of Corgentum Consulting, LLC. He is recognized as one of the leading experts in the field of hedge fund operational due diligence. Before founding Corgentum, he oversaw the operational due diligence function for a $6 billion alternative investment allocation group called Graystone Research at Morgan Stanley. He earned an M.B.A. in finance from Baruch College’s Zicklin School of Business and a J.D. from St. John’s School of Law. He is admitted to the practice of law in New York and New Jersey. Additionally, he holds the Certified Fraud Examiner (CFE) and Certified in Risk and Information Systems Control (CRISC) credentials.

Affiliations and Expertise

Managing Partner of Corgentum LLC., a specialist consulting firm with offices in New York and San Francisco.

Reviews

"What explains the wide dispersion of hedge fund returns, even within particular strategies? One factor that has attracted surprisingly little attention is the quality of hedge fund governance. Addressing this important gap, Scharfman’s deep analysis should be of substantial interest for investors, regulators, service providers and academics alike."  --Peter Cornelius, AlpInvest Partners

"Finally!  This book has been long anticipated because of its key focus on corporate governance in the hedge fund industry.  Its new and creative approach will no doubt attract money managers, institutional investors, accountants, family offices, lawyers, pension funds and many others.  Jason Scharfman has filled that gap in the hedge fund industry, and his book will be the leading study of hedge fund governance."  --Greg N. Gregoriou, State University of New York

"Jason Scharfman has written an authoritative guide to corporate governance in the hedge fund industry. Hedge Fund Governance is comprehensive and analytical, but is written in a conversational and accessible tone from an intensely practical perspective, complete with checklists and advice about risk management and compliance as well as excerpts from candid interviews with informed practitioners. It will be useful to just about any participant in the hedge fund industry, including investors, regulators, lawyers, risk managers, and hedge fund employees at all levels."  --Frank Partnoy,  University of San Diego