With a seemingly never-ending increase in new laws, regulations and best practices that need to be implemented in the management of Luxembourg based funds, Independent Directors face higher demands on their skills, competences and in their role as independent governors. Rikard Lundgren, CEO of Steendier looks into the crystal ball and suggests that to keep up with these increasing demands, IDs will need to deepen their expertise and focus even more on their role as Prudent Persons and protectors of investors’ best interest. Failing to do so could mean that critics of Luxembourg’s dominant position as fund center as well as the competition from other fund jurisdictions, could gain ground at Luxembourg’s expense.
What would such deepening of skills and expertise mean for IDs and how fund boards are composed?
I think IDs will want to acquire more in-depth expertise in one or more of the mentioned areas, to be able to ask the right questions and put the right demands on service providers and other stakeholders of a fund. We only need to look at how rapidly AML/CFT, GDPR, Cyber Security, LMT (Liquidity Management Tools), and soon also ESG have developed to see that a board without its’ own in-depth competence in these areas will be less efficient. It is not unrealistic to expect each ID to bring one or two areas of expertise for the benefit of the whole board. Looking across non-financial industries, looking at the skills brought by each individual, is often is how boards are composed. So why not funds?
IDs must not fall in the trap of being content with the present but continuously aim to improve and develop our role, even if this means that old dogs, like myself, have to learn new tricks!
How can increased focus on Independence improve the position of ID?
We IDs could more clearly take the role of “Prudent Persons” in fund’s governance structure to further protect the interests of investors, especially those that are less well-informed. The development of this role means that IDs independence becomes even more important. A direct connection with the CSSF/AED and a strengthened code of conduct for IDs would be steps in this direction. Clear identification and elimination of Conflicts of Interests would be another important part of this. My learned colleague and fellow ID Jan-Stig Rasmussen is onto something when he points out, in the last issue of Duke that an ID with strong financial dependence on one sponsor may not be as independent as is desirable.