Research shows demand for transparency in fund governance

Thursday 21 October 2021

81% of investors indicated they would like more transparency in fund governance, including in the selection process of directors, according to the first survey of its kind in five years.

Published by IFI Global and supported by Jersey Finance, ‘Funds Governance in 2021: What it Means to Investors’ explored how approaches to fund governance are changing in a "post-pandemic ESG (Environmental, Social, and Governance) era".

The survey - which was based on the views of investors and their advisors in North America, Europe, Asia Pacific and the Middle East - found that most investors (54%) believe that ESG considerations will have an impact on fund governance.

The research also found that there is an increasing demand for board directors to have specific portfolio management or industry experience in the underlying strategy, for them to be independent, and for them to have term limits imposed on them.

Among the report’s other key findings were:

• The overwhelming majority of respondents (84%) said they thought governance is helpful but not that important; while 8% said that they view fund governance as very important, the same number who replied saying it is not important
• All respondents felt that the purpose of fund governance is to protect the interests of investors, rather than to serve the interests of the fund
• 'Experience' is the quality investors want to see in the directors of the funds they invest in, closely followed by independence. Meanwhile, gender diversity on the board did not evoke particularly strong feelings, though there was a sense that ESG investing might impact this
• 85% of investors said they wanted term limits for directors
• 81% said that they would like to see more transparency in fund governance, including in the selection process of directors.

Pictured: Elliot Refson, Head of Funds at Jersey Finance.

“The findings of this new study provide a valuable insight into the thinking of investors, who we know, based on this and previous research, are driving change in the alternatives space," Elliot Refson, Head of Funds at Jersey Finance, said.

“It is perhaps surprising that, in a period where we have seen unprecedented change, fund governance continues to evolve at a relatively slow pace. Nevertheless, approaches to governance are maturing in response to the ESG drive, greater demands for transparency and the need for deeper levels of experience. This is now the clear challenge for fund boards and managers – to focus on ensuring that their approaches to governance are fully aligned with those of their investors.

“It’s a challenge we are fully engaged with in Jersey, where we have a deep and broad talent pool across asset classes and have already taken great strides in terms of the G element of board diversification.”

Simon Osborn, CEO of IFI Global and author of the report, added: “This is the first research study we have conducted with investors on fund governance in five years, and it is therefore the first time that we have surveyed investors on governance in the ‘ESG era’. Whilst there are some persistent views on governance amongst institutional investors, attitudes and levels of sophistication are changing, and the findings of this report should act as a benchmark in an area that continues to evolve.”