A survey of global investment groups together overseeing
over $9.5 trillion in assets under advice shows that almost three-quarters of
them (71 per cent) believe that fund governance has become a more prominent
issue in the past four years, and 90 per cent want fund boards to address
conflicts of interest as a matter of routine.

The survey was carried out by Carne Group, the provider of
independent governance and oversight solutions for the fund management sector.

The findings come at a time when oversight of how funds
operate has been tightened in various jurisdictions such as the European Union
and US in response to concerns about lack of control and clear information in
the past. In the EU, for example, the bloc has recently enacted sweeping
regulations on the alternative investment fund management sector.

A lack of independent fund directors on fund boards and a
lack of experienced fund directors are seen as the two primary failings in fund
governance arrangements, the survey found. It also showed that investors rate governance in the
broader funds industry at 5’s and 6’s out of 10 rather than a desired 8 or 9
out of 10.

Most independent fund boards and fully independent service
providers are regarded as the best means of managing conflicts of interest at
the fund level.

Among other findings was that 83 per cent of investors would
like fund boards to have a majority of independent directors and 62 per cent to
have an independent chairman; some 95 per cent of investors would like to see a
fund industry global code of governance in place. Most investors want the
industry to provide the solution and do not want more regulation.

“A risk management background is now considered the most
sought after professional skill for independent fund directors, according to
investors. This is in contrast to two years ago when a premium was placed on
directors with a legal background,” the survey authors said.

Participants in the survey included wealth managers, pension
fund consultants, large pension schemes, insurance companies and sovereign
wealth funds. The paper also includes guidance on mitigating possible conflicts
for fund managers and boards.

“Investors felt there have been enhancements to fund
governance in the last two years, however they also voiced a variety of
concerns about conflicts of interest when we consulted them for this research
and wanted more focus on conflict identification, mitigation and management by
both onshore and offshore funds. They also felt a lot could be addressed by
fund boards with competent independent directors,” John Donohoe, chief
executive of Carne Group, said.

“There has been considerable improvement in board level
governance in some quarters of the industry since our last survey, and that has
to be recognised,” Donohoe added.

The survey was conducted by Carne in the first half of 2013.