Hedge Fund Directorships
Fund Directorships A Booming Business in Cayman IslandsAn interesting story was on DealBook this week about hedge fund directorships especially in the Cayman Islands where this is actually a fairly "big business." The thrust of the story questions how some directors will serve on dozens of hedge fund boards due to a requirement in the tax code that a fund must have a board. One director, for example, serves on over one hundred hedge funds, showing the high demand for directorship services.
In the last decade, as hedge funds ballooned in size and number to become a dominant force in the investing universe, directorship services have grown from a cottage industry into a big business on the Cayman Islands. Many funds run by United States money managers have their legal residence here for tax reasons. And because of a quirk in the island’s tax code, these funds must appoint a board.
As a result, dozens of operations have sprouted up on the Caymans to supply directors, from one-man bucket shops to powerhouse law firms. Directors are often Cayman-based professionals: accountants, lawyers and administrators of hedge funds.
They are rarely investors, though. Ostensibly, directors offer guidance and oversight to the funds. In return, a director is typically paid anywhere from $5,000 to $30,000 a year. With mo re than 9,000 funds domiciled on the tiny island, business is booming.
And so is a debate. Major investors and others are starting to question the value of offshore directors, especially in light of recent hedge fund frauds, liquidations and missteps. An analysis of thousands of United States securities filings by The New York Times shows that dozens of directors sit on the boards of 24 or more funds in the Caymans, which individually are supposed to be overseeing tens of billions of dollars in assets. Some hold more than 100 directorships, and one particularly busy director sits on the boards of about 260 hedge funds.