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Prior to Joining a Fund Board

Candidates for membership on a fund board should realize that joining a fund board is not a responsibility to be taken lightly. The structure of an investment company is complex and at times quite technical. For those who do not have fund industry experience, the learning curve is steep and long. There are a number of factors that fund board candidates may wish to consider when making the decision of whether to join a fund board. Once a candidate decides to join a fund board, he or she may then wish to consider the timing of becoming a board member. Both of these topics are discussed in more detail below.

Board Opportunity Due Diligence Considerations

While joining a fund board is likely to be an interesting and fulfilling experience, that experience carries with it legal responsibilities and attendant liabilities. As a result, director candidates should be mindful to “kick the tires” of the fund complex they are thinking of joining. No two complexes are the same and it is important for candidates to satisfy themselves that the complex in question is right for them. Among the questions that candidates may wish to consider asking before joining a board are:

  • Who are the individuals currently on the board? Is there a mix of backgrounds and expertise on the board and how do I fit in both professionally and personally?
  • Who is the adviser? What is their reputation in the industry? Has the adviser been the subject of significant compliance or legal concerns?
  • Why am I being considered and what expectations would the board have of me?
  • How is the relationship between the adviser and the board?
  • How is the board structured? What committees exist? How often do they meet? Does the board size seem appropriate in light of the number of funds overseen?
  • Does the board have an independent chair or a lead director?
  • What is the amount of D&O insurance coverage provided and who is the insurance carrier?
  • What is the compensation of the directors?
  • Do the independent directors have independent counsel? If not, why not? If so, is it a reputable firm that is knowledgeable in the field?
  • How much time is involved in preparing for board meetings?

The “Right” Time to Join a Fund Board

There is no right or wrong time to join a board. A new director, however, should consider carefully which board meeting will be his or her first. For example, a board’s contract renewal meeting (the meeting at which the board considers renewing the fund’s contract with the investment adviser) typically entails lengthier, more-complicated meeting materials than any of the other board meetings held during the year. The contract renewal meeting also can be marked by difficult conversations between the board and the adviser if there are concerns with the performance or fees of the fund. For these reasons, a new director’s transition into the board is likely to be an easier one if his or her inaugural board meeting is not a contract renewal meeting.

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