Investors call for increased fund board transparency

Survey finds ESG interest driving scrutiny on fund governance

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Investors and their advisers would like to see more transparency on fund boards particularly in terms of how members are selected, although very few said gender diversity on boards was important to them.

Research carried out by The NED and published by IFI Global and Jersey Finance, entitled Fund Governance in 2021: What it means for Investors, found 81% of those surveyed would like to see more transparency in fund governance especially the selection process of directors, and also for the composition of boards to be made publicly available.

However, when asked about the attributes they valued most in the directors of the board gender diversity only scored 4.9 out of 10, compared with scores of 8.3 for independence and 8.7 for experience.

The NED surveyed 26 investors and their advisers between April and mid-June 2021. Some 46% were in the UK; 31% in the US,12% in the Asia-Pacific region; 8% in Canada and 4% in the Gulf.

Overall findings included that increasing interest in ESG considerations will have an impact on fund governance, with half indicating this. When asked how this will change in the future, respondents said ESG would be a playing big role in fund governance in another year or two.

Interestingly, 84% said fund governance was helpful but not important while 8% said it was not important and another 8% said it was very important.

Nobody surveyed said that the quality and experience of the board is a determining factor when deciding whether to allocate to a fund, but a number of interviewees made the point that if there is a problem with the board, the manager will make changes to avoid losing the investment.

As mentioned, experience was the most important quality they would like to see within the board, but term limits for directors are also wanted by 85% of the respondents.

Elliot Refson (pictured), head of funds at Jersey Finance, commented on the findings: “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.”

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Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...