Today, the Mutual Fund Directors Forum released Board Oversight of Alternative Investments, in response to the increasing number of directors who oversee registered funds offering hedge fund-like strategies. While director duties do not change based on the type of funds a board oversees, the paper explores unique challenges that may arise as a result of the strategies and investments used by alternative funds.
The paper is designed to help directors focus on the primary differences between alternative funds and more traditional mutual funds, and explores the following issues:
- Questions that a board can consider if the adviser proposes adding an alternative fund to the complex;
- Areas that may need special attention if the adviser hires a sub-adviser to manage the alternative fund, particularly if the sub-adviser lacks experience with registered funds;
- Considerations for directors as they seek to understand an alternative fund’s investment strategy and how to evaluate the fund’s performance; and
- Challenges in operational risk oversight, particularly with respect to Investment Company Act of 1940 (“1940 Act”) restrictions that may make the manager’s implementation of the fund’s strategy difficult.