Two issues continue to generate debate among offshore legal practitioners and independent fund directors. The purpose of this article is to review some of the factors at stake and offer some tentative conclusions. One debate has focused on the rules governing whether hedge fund directorships should be limited, while the other is concerned with whether offshore law firms should severe their relationship with affiliates.

Disclosing directorships
The Securities and Exchange Commission recently adopted amendments to certain proxy rules to require disclosure of any directorships at public companies and registered investment companies held by each director and nominee during the past five years (even if the director or nominee no longer serves on that board), together with the names of the companies in which the directorships were held. While this amendment should not affect offshore funds or their directors (on the basis that offshore funds do not appear to be required to be registered with the SEC and therefore do not appear to be currently subject to the new SEC rules), the concept should be of interest to both regulators and directors of offshore funds.

Should the regulators in offshore jurisdictions follow the lead of the SEC and apply a similar rule to all offshore funds, such a disclosure may be a frightening task for those offshore directors that sit on the boards of 600 to 1,000 companies (which may either be registered or not registered with a regulatory authority responsible for investment funds). On the other hand, it would provide investors with a higher level of transparency regarding the number of directorships held by any single director and may affect an investor’s perception as to whether or not that number might affect a proposed director’s performance on a board of an investment fund and that director’s ability to discharge his duties to that fund.

Industry discussions in the Cayman Islands suggest that there is no real way of deciphering what number of directorships is appropriate to be held by any single director. Each company has unique characteristics and may require a different level of attention (depending, for example, on the frequency of board meetings or NAV reviews). In addition, the level of infrastructure may also determine whether a given number of directorships can be managed efficiently. The appropriate number of directorships, therefore, will vary on a director-by-director and a company-by-company basis.