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Directors should be asked if they are willing to show independent
thought and that they fully understand directors’ duties, including
the interests of investors and be able to manage conflicts. The
directors should also have a good working knowledge of corporate
law and the mutual fund laws and regulations of the jurisdictions
the hedge fund operates in, as well as a good grasp of international
issues affecting hedge funds.
The hedge fund industry works on the basis of disclosure to
investors (primarily through the fund’s offering document) to
make informed choices, even though investors in these vehicles
must be sophisticated. Careful consideration is required to ensure
the offering documents are consistent with the constitutional
documents and reflect the operation and investment strategy of
The US Foreign Account Tax Compliance Act (FATCA) and Common
Reporting Standard (CRS) reporting has now bedded down. Most
service providers are aware of the annual requirements to make the
filings on the Cayman Islands Tax Information Authority’s Automatic
Exchange of Information (AEOI) portal.
Directors of hedge funds are charged with the responsibility
to ensure that the relevant information is gathered from the
shareholders and filed on the portal. Sometimes the directors
themselves act as the principal points of contact (PPoCs) for
There is nothing to prevent a director acting as a PPoC, but
depending on the complexity of the required reporting and the
investor base, it is usually preferable that the administrator or
manager can upload the required reports directly.
Beneficial ownership reporting
All hedge funds are required to document how and whether they
are exempt from reporting their beneficial owners to the secure
Cayman Islands government platform. Most funds rely on the
exemptions provided for by their Cayman Islands Monetary
Authority (CIMA) mutual fund registration and their regulated
service providers. This is normally addressed in the first board
meeting and recorded at the registered office.
The directors must ensure that the correct exemption has been
selected and is appropriate for their fund.
The Cayman Islands will shortly implement its own Data Protection
Laws which are very similar to the EU General Data Protection
Regulation (GDPR). A director’s consideration for GDPR is whether
the fund has any EU individual shareholders and whether there has
been relevant notice provided to those shareholders on how their
data will be handled.
Quite often for a new fund this can be addressed through
amendment to the subscription document and disclosure in the
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possessed sufficient experience. There were also other issues,
including the relationships with the manager.
When selecting a hedge fund director experience is vital to ensuring
that proper oversight is achieved, whether this be directors from
different firms with complementary professional backgrounds or
people from the same firm with different experience.
If the director has no relevant industry experience, this can be a
red flag to investors and regulators that there is no proper oversight.
Evidence of professional qualifications and experience should be
sought from directors (such as being a qualified accountant or lawyer).