Mutual Fund Independent Review Committee Services

Independent Review Committees for Public Mutual Funds and Private Hedge Funds.

Introduction

The Governance of public mutual funds is now a hot topic around the world. In the U.S., the SEC has mandated that the Chairman and at least 75% of the board of all public mutual funds must be totally independent from the investment manager. Here in Canada, the Canadian Securities Administrators have introduced a new National Instrument 81-107 entitled "Independent Review Committee for Mutual Funds" (the "Instrument"). The Instrument came into force on November 1, 2006 and the first IRC members for existing funds had to be appointed before May 1, 2007. New funds are now required to have their IRC up and running before the manager can accept purcahses in the fund.

The Instrument requires all publicly offered mutual funds (including closed-end listed funds) to have an independent review committee (IRC) which is charged with reviewing any conflicts of interest that may arise out of the management of the funds and making recommendations to the manager as to how these conflicts may be fairly resolved. The IRC is a committee of at least 3 individuals, each of whom is independent from the manager and the fund.

Many commentators in the industry have pointed out that there is a very limited pool of people who are both suitably qualified and willing to take on the role of an IRC member (particularly in view of the potential legal liabilities that might attach to such a role) and that such committees impose a significant cost burden on the investment fund industry.

The Costs of Setting up and Running an IRC

The Cost Benefit Analysis that accompanied the Instrument suggests that mutual funds could expect to pay up to $250,000 per annum to attract a suitable chairperson for an IRC, and between $30,000 to $200,000, per annum, for each other member. In addition there will are considerable internal administration costs for mutual funds that run their own IRC's, together with external legal fees and "search" fees (where external selection of candidates is required).

Overall, the cost benefit analysis suggested that the total cost of setting up and running an IRC would be within the following ranges:

	Set-up costs: Low end	Set-up costs: High end	On-going costs: Low end	On-going costs: High end
	$	$	$	$
Small Fund AUM under $2B	75,000	225,000	202,753	686,112
Large Fund AUM over $2B	142,134	298,780	348,696	2,167,388

Fortunately, IRI is able to set-up and run IRC for a lot less than these numbers.

Independent Review Inc.'s Business Solutions

Independent Review Inc. offers to establish and run IRCs for appointment by public mutual funds and private hedge funds as the fund's independent review committee (either in accordance with the legal requirements of the Instrument or by way of a voluntary compliance with the current best practice in corporate governance of funds).

Independent Review Inc. offers its IRC service to mutual fund families and hedge funds as a turn-key way to set up an IRC. In other words, a mutual fund client can outsource its independent review committee obligations to Independent Review Inc.

Independent Review Inc. assists the the Manager to establish an IRC and the Fund then appoints that committee to be the Fund's independent review committee. Independent Review Inc. then contracts with the IRC to run that committee on the Manager's behalf (thus saving the Manager and the Fund the time and expense of constituting and running the IRC on their own).

Independent Review inc. is the lowest-cost, easiest way to establish a first class IRC.

For more details on how to set up and run an Independent Review Committee please see the list of items in the navigation bar on the left or call us at 416.849.1928.