In today’s complex regulatory and economic landscape, selecting the right board of fund directors is crucial not only for a fund’s initial launch but also for its long-term success. This principle is just as important for next-generation, new, or spin-out managers as it is for more established firms – a point emphasised by speakers at this year’s AIMA Next Generation Manager Forum.
Abi Holland – CEO, Jon Masters – Director, Head of Business Development and Mark Drennan – Senior Manager, Client Relationship Manager from INDOS Financial, a JTC Company, share their insights on why proper board composition is essential for the sustained success of new managers.
Understanding the ‘right’ board is not as straightforward as it might seem, with emerging managers often finding it difficult to select new directors, to ensure a balanced board with diverse skill sets, and to measure their effectiveness.
Moderating a panel at this year’s Forum, Jon highlighted that good, sustainable governance was intrinsically linked to board composition:
“There’s no doubt – it can be had to start from scratch, and securing a successful launch is always going to be priority for a new manager looking to get off the mark and make an impact. But it’s important to have one eye on the longer term and recognise the importance of putting in place good governance frameworks at the outset. Board composition is critical to that.”
The qualities that make up a ‘good’ board, meanwhile, can involve some important and difficult decisions, as Jon highlights:
“A truly independent board is necessary to underpin good governance which in turn is important to investors” he explains. “In the long run, managers will be pleased that they have put the time and effort into establishing a board that they can rely on – that can provide them with reassurance, continuity and robust skills.”
Typically, a fund board is likely to attract directors with legal or financial expertise – but other areas of expertise are important too, such as operations, marketing, technology or sustainability. Ensuring that board can demonstrate diverse experience is important too, as Mark explains:
“Looking for gaps in knowledge and skills at board level can also add value. That breadth of experience can be a huge advantage for new managers – not only can it give them access to far reaching expertise, but it also helps ensure genuine independence from the manager, providing them with an objective perspective.
“For a new manager who may feel quite isolated, operating as part of a small outfit, that sort of independent perspective is invaluable – particularly when it comes to satisfying the needs of institutional investors.”
Beyond an initial fund launch, establishing a respectful relationship between a manager and a board is important when it comes to building a scalable business too, says Abi:
“Building that open, strong working relationship can make all the difference, and we see that consistently with the next generation managers we work with.”
It is a point that Jon is quick to emphasise too, stressing that future success is about putting the building blocks in place from the start, so that a manager doesn’t outgrow a platform too quickly:
“Doing that might seem counter intuitive to a manager who is hungry to set out their stall quickly. But the last thing a new manager will want to do is experience rapid initial growth, become overburdened and then have to row back and revisit their frameworks and structures. Doing that can create additional cost and frustration, and sour relationships with investors they’ve worked so hard to attract.”
The next generation manager space is an area where the team at INDOS is seeing more activity as managers in the hedge, private credit and wider alternatives space increasingly look to ensure they have the right infrastructure to ensure they are geared up to succeed:
“We’re definitely seeing more interest from managers looking to raise European capital,” says Abi. “That’s the case at INDOS where we provide depositary services but right across the JTC Group too, including JTC’s CoSec and AIFM teams. We’re finding that managers value our global reach and the ability to tap into the skills they need, but also the specialist on-the-ground regional knowledge the team can provide – how board requirements in Ireland might differ from Luxembourg, for instance.”
Looking forward, the next generation manager landscape looks set to continue to evolve rapidly as fundraising conditions heat up, competition intensifies, and regulatory requirements become more and more complex.
“The amount of due diligence by institutional investors before they come into a fund is continuing to increase,” says Jon. “It’s putting board composition right at the heart of new manager thinking – and there’s no doubt that getting it right from the outset and giving it the thought it deserves can be transformational for such a manager in the long run.”
The INDOS Financial team regularly attend industry events such as the AIMA Next Generation Forum, that took place this summer, to keep up to date with the latest industry developments, exchange ideas and network with likeminded professionals.
To learn more about INDOS Financial or find out how we can help you, please contact: Abi, Jon or Mark directly.
