Hedge Fund Services

In the case of publicly-listed companies there are now well established standards of best practice and guidelines in respect of corporate governance. These standards have evolved through legislative and regulatory reforms and the initiatives of capital market participants over the last four years. For example, in July 2002, the Sarbanes-Oxley Act (SOX) was enacted in the United States.

The governance of investment funds is now a hot topic around the world.  A series of mutual fund scandals in the U.S. has heightened regulatory scrutiny of the public fund sector in both the U.S and Canada. In the U.S., the SEC has recently mandated that the Chairman and at least 75% of the board of directors of all public mutual funds must be totally independent from the fund manager. In addition, as from 1st February 2006, hedge fund managers with more than 15 US investors are now required to be registered with the SEC (subject to a certain size and lock-up period exemptions).

Here in Canada, the Canadian Securities Administrators are about to introduce a new National Instrument 81-107 entitled "Independent Review Committee for Mutual Funds". Although the National Instrument is only applicable to funds which are offered to the public, many Canadian hedge funds will experience pressure from investors to follow the same standards - particularly from large institutional shareholders

Due to the size of investors’ assets now held by hedge funds and the expansion of the investor base, the governance standards demanded of publicly-listed companies and public mutual funds, with some limitations, are broadly applicable to hedge funds.

Canadian hedge funds should therefore adopt international standards and have independent directors and/or establish an independent Advisory Committee. Voluntary compliance now will help to avert the introduction of more rigid regulatory standards on Canadian hedge funds in the future.

IRI offers to provide independent directors and/or establish and run Independent Advisory and/or Review Committees for appointment by public funds and private hedge funds as part of the fund’s independent governance structure (either in accordance with legal requirements or by way of a voluntary compliance with the current best practice in the governance of funds).