Hedge fund directorships are again in the spotlight. Don Ebanks, managing director at DMS Management, talks about directorships and why he thinks the DMS model is sound and approved of by investors.

The debate about directorships of offshore hedge funds is back in the news. A recent report by Carne Global Financial Services on directorships concludes that investors want better corporate governance. A national newspaper in the UK recently ignited discussions after calling into question the number of directorships held by some individuals based in the Cayman Islands.

The issue of how many is too many hedge fund directorships for an individual has been rattling on for some time.

Don Ebanks, managing director at DMS Management, which has been subject to criticism for its business model of providing directorships to hedge funds, defended the company at an event in London on 18 November. 

At the event Ebanks outlined the present state of governance in hedge funds and the rules governing directorships. Cayman-domiciled investment funds are set up as corporations and by law require a board of directors. Many investors take this a step further and require independent directors.

There is no statutory code which sets out the duties and liabilities of directors so these are taken from English common law, which states directors have a fiduciary duty and duties of skill, care and diligence.

Ebanks thinks in future there will be greater scrutiny of directorships. He quoted a 2011 Moody's Investor Services report which says: "Corporate governance of hedge fund firms has come under greater scrutiny with the shift in the hedge fund paradigm from predominantly high net worth individuals and families to an institutional investor base, increased regulatory oversight in both the US and Europe, well-publicised insider trading cases, and the recent financial crisis… As large institutional clients become the major investors in hedge funds and regulations come into effect, hedge fund firm governance and oversight should continue to evolve and improve."

The recent Cayman Islands Grand Court judgment on the Weavering case (although the directors in question are appealing against the ruling) has added further fuel to the debate about the role of directors while clarifying  exactly what is expected of independent directors of hedge funds. The court judged that the fund's independent directors should exercise a "high-level supervisory role". The role of independent directors for offshore hedge funds is being examined by several financial service regulators as well as the industry in general.

Ebanks provided some further thoughts on the state of directorships and gave a response to criticisms of the company's model.