Weavering case the big theme at Cayman Fund Focus

The ninth annual Cayman Fund Focus conference, presented by law firm Campbells and set for 18 November 2011 at the Westin Casuarina Resort, will take an in-depth look at the implications of the recent Grand Court decision in the Weavering case.

In that Grand Court judgement, two directors of the Weavering Macro Fixed Income Fund were found guilty of wilful neglect of their duties and held personally liable for losses of US$111 million. The case highlighted the issue of directors who do their job “in name only” and the need to appoint professional independent directors to supervise a fund’s service providers.

Boris Onefater, managing director of Constellation Investment Consulting and panelist on the event’s manager & investor and director panels, believes the impact of the Weavering case will be huge. “It will impact the industry, it will impact the directors, it will impact the costs and it will impact the role of the director fundamentally,” he said.

The judgment follows years of discussion within the industry and will put a renewed focus on what is expected from directors, how involved they have to be and as a result how they should be compensated, Onefater said.

Although the Weavering case may not be typical of the industry, given the family relations between the fund directors and the fund manager, Onefater noted that “there are directors who are probably not doing enough who in light of the judgment will have to think twice”.

Onefater argued that while business models of fund governance providers will be questioned, it will be more important to determine the responsibilities of a directors and how involved a director can really be. There are a lot of different business models and approaches, but there are also pros and cons to every model, he said.

Campbells Managing Partner Alistair Walters confirmed the importance of the decision for the financial services industry and said the conference “Call of Duty – Cayman Funds” will be hosting an impressive line-up of speakers who will offer an discussion of the decision itself, the potential effects and what the various stakeholders will need to look at going forward.

“Following the Weavering decision, we will be concentrating on the relationship between investors, funds and their service providers, looking at service-provider selection, the nature of services provided, duties assumed and contracted for, and how and when expectation gaps may arise,” Walters explained.

Onefater expects the raising of capital, which is another significant issue for hedge funds at the moment, will also be part of the debate at the event, as funds are having a difficult time starting up. In addition existing funds are concerned about capitalising and their ability to expand into new markets and new products. “Even people who are having a good solid performance are impacted by this,” he noted.

Risk management is another critically important area for discussion, in terms of what should be done, in what way and the level of infrastructure required, Onefater said.

More extensive due diligence which has been on a hot topic for the last couple of years has not experienced a push back, he added. “The pendulum has not swung the other way. There are certainly alterations and changes to the models but a lot more is spent on due diligence than in the years past.”

With regard to the this year at times disappointing performance of hedge funds overall, Onefater believes, that because of the unfavourable macroeconomic conditions some funds are not positioned in the right way. “But there are a number of other funds who have actually gone to cash months ago, waiting for opportunities, so they are not down as much as the market.”

December and January will be important indicators of how people are coming out of the recession or second downturn and a lot will depend on what will happen with the sovereign debt crisis in Europe.

“Fundamentally I think we as an industry are going to come out much better than the long-only products and other products, just as in 2008 when hedge funds did much much better,” he said. “Right now I think hedge funds are not doing worse. I think they are just not doing as well as people were expecting them to.”

Walters will introduce the day-long Cayman Fund Focus conference, followed by keynote speaker Cindy Scotland, managing director of the Cayman Islands Monetary Authority. Yolanda Banks-McCoy, CIMA Head of Investment and Securities, will offer a regulatory update.

The conference will also address fund start-up, operation, management and troubleshooting from various perspectives with manager & investor, director and administrator & auditor panels.

Ross McDonough and Kirsten Houghton of Campbells will provide a legal perspective and hold a question-and-answer session on the Weavering case.

Another group of experts will examine “Restructuring, Liquidation And Litigation Issues”, with the last session looking at “The Future of Independent Directors” with Don Seymour, managing director, dms Management Ltd, and Jason D. Papastavrou, of Aris Capital Management.