by Glen Wigney and Andrew Linford

Corporate governance is vitally important to both public company shareholders and mutual fund investors alike. The audit process is a cornerstone to that governance process and the comfort added by audit committees is valued by all stakeholders; investors, management, administrators, regulators and auditors. Perhaps the time has come for alternative investment funds to embrace the concept of audit committees?

Could this be an opportunity for alternative investment managers to differentiate themselves with potential institutional investors? An audit committee could provide CFOs with an effective resource to ensure audit efficiency. For auditors it provides an independent party to ensure commitments and deadlines are met, not just by the audit firm but also by the client and thus reducing the likelihood of significant unbillable cost overruns. If independent audit committees had been in place for investment management frauds such as Madoff, Weavering and Bayou, investors would have benefitted from a very different outcome. In short, all stakeholders would benefit from this evolutionary change in the alternative investment industry and what makes it such a no-brainer is that the marginal cost to those stakeholders is negligible and in some cases negative. It’s a classic win-win.

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by Glen Wigney

I have recently entered the fund governance arena after 30 years of Big Four auditing in Canada, Cayman and, most recently, in the United States. It has become apparent to me that this background has given me a unique perspective on many issues facing the industry. Additionally in starting my “new career” in fund governance I have done many meetings and consultations over the past months with industry colleagues around the globe and this has given me the opportunity to benefit from the many viewpoints of these individuals.

In this article I would like to share the viewpoints shared with me on one of the emerging trends in fund governance: the split board. Having a fund board of directors with multiple independent individuals who are not connected to each other by a common directorship services organization has been become known as a “split board”. I will explore why proponents of the split board model consider it to provide a more effective governance solution and what are some of the possible disadvantages to this model.

The Trend

Hedge fund governance continues to evolve and in a very positive way for Cayman Islands investment funds and their investors. With the increasing demand by investors for enhanced hedge fund governance it is perhaps not surprising the split board model is being recognized by some as providing a more effective form of governance for the reason discussed below. Proponents of this model would suggest that two or more independent directors being provided by the same directorship services organization is less than ideal and perhaps not best practice.

Not that long ago fund boards were populated solely by representatives of the investment manager. This provided investors with ineffective oversight of the investment manager and very little control of difficult situations.

Fund boards then evolved to include directors from outside the investment manager. Outside directors are often taken to be independent directors, yet the independence of some directors who meet the definition of an outsider can be questioned such as individuals provided by affiliates of suppliers to the fund.

Although this situation is clearly still very much alive and accepted in today’s fund governance landscape the demand for independent directors whom are in no way affiliated with, or a supplier to, the fund seems likely to continue to increase. This has led to the proliferation of directorship services organizations specializing in fund governance. From organization to organization varied models exists in the marketplace but it is not uncommon for such an individual organization to provide two independent directors to a given fund. This is very common in the industry but the recent trend is increasingly for split boards. I have observed this trend and its existence is supported by industry expects and by surveys conducted law firms. Many see this as a healthy trend and as a step forward to more effective fund governance. Many funds who have not adopted the split board model are actively considering this change.



Many consider that an additional level of governance is achieved by having a split board and that conflicts can be avoided by adopting this governance model.

A split board model can create healthy competition between governance professionals which works to the benefit of the fund and its investors. Many investment managers use two audit firms to create health competition between the firms. The existence of a second audit firm helps to keep the service levels of both firms at their highest levels. With a split board model a fund can create a similar dynamic between the individuals serving on the board. Each will be motivated to do their homework and ask appropriately probing questions which is all in the best interest of the fund and its investors. The full advantages of having multiple independent directors will be realized. If the effectiveness of a fund’s governance structure is a major concern for potential investors and those persons see added value in a split board, the investment manager’s capital raising efforts may be more successful with this model.

Proponents of the split board model argue that you are more likely to obtain multiple objective points of view. Directors from the same organization may be more likely agree on a common point of view on an issue. This may be a result of common training and/or internal discussions on a given issue. The need for multiple points of view can be crucial in times of trouble. It is also possible that the ramifications of a board decision may not be in the best interest of a given directorship services organization. Supporters of the split board model would suggest that this may be even more relevant where two directors are provided by an affiliate of a supplier to the fund. Having a split board may, in many instances, result in less conflicts of interest given the level of independence on the board.

It is possible that where one director (an employee of a directorship services organization, whether large or small) leaves that firm it may be difficult for that organization to match the existing desired combination of experience and expertise provided by the two existing directors. When that firm attempts to fill the board vacancy their options will be restricted by not only the pool of candidates within their firm but also by those who have the capacity to take on an additional appointment. In this situation, maintaining the strength of the board is reliant on not only the bench strength of the directorship services organization but also the capacity those individuals. If the fund is able to choose from a variety of sources and organizations the fund is more likely to maintain the overall combination of skills and experience investors want on the board. 

In my discussions with proponents of the split board model it was argued that when a fund adopts this model it is more likely to get two fully engaged and active individuals on the board. The thinking is that in some situations when one organization provides two directors it may occur that one director takes the lead and the second to takes a less active role. Some would argue that this allows the organization and its individuals to take on additional appointments and still been seen to be serving funds with two board members. If this was in fact the case the fund and investors would not be receiving what they are paying for – multiple fully engaged and active professionals.


It is likely that one directorship services organization will able to provide attractive pricing for the provision of two directors. It is probable that the split board model will cost the fund more. That said the additional cost to have, what many would argue is a more effective board, should be marginal.

If the fund is using independent directors from different organizations the fund may be faced with differing views on director services terms. These issues may be minor in most cases but you will, for example, likely be faced with different director services agreements to review and consider. Other issues may surfaces but it has been my experience that Cayman independent directors work well together and the resolution of differences are handled effectively, efficiently and with a commercial sense.


Governance in the alternative investment industry continues to evolve and there is still a place for all models. In fact some funds continue to have the investment manager be responsible for fund governance and no independent governance is required by investors. If that is sufficient for investors of that fund any discussion of alternative models is academic. On the other hand the addition to fund boards of multiple independent directors is a clear industry trend and one that is a positive step for the protection of funds and their investors.

Perhaps the next step in the volution of fund governance is the concept of the split board. This industry trend is being driven by investors who consider that the challenges of such a model are far outweighed by the benefits provided to them by a board which will be more effective in all situations.

2021 12 04 11:46:5633