(Reuters) Investment-fund boards of directors have a critical responsibility to be an “independent watchdog” on behalf of investors. For most U.S. retail investors, mutual-fund directors of mutual funds are held to strict standards under the Investment Company Act of 1940 and usually perform as required. However, directors of private funds, that is, hedge funds, often are not truly independent, meaning free from conflict. And often they serve more as a “rubber stamp signatory” with little monitoring or oversight.
Structural problems associated with directors of private funds are reviewed below, in light of a case against hedge fund firm Platinum Partners, where criminal charges were filed against top executives for running the $1.4 billion fund “like a Ponzi scheme.” Some suggestions and best-practice advice for private fund boards of directors are also offered.
