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12 Board of Directors Composition as a Means to Mitigating the Governance Challenge

From: The Law of Private Investment Funds (3rd Edition)

Timothy Spangler

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 30 May 2024

Subject(s):
Regulated activities — Private fund

This chapter explains how the composition of the board of directors can mitigate the governance challenge in private investment funds. The dependence of a private investment fund on the fund manager is a key factor in the governance challenge. Directors of the fund vehicle must ensure that their fiduciary duties are adequately fulfilled, especially in circumstances that put them in direct conflict with the fund manager. The inclusion of directors who are independent of the fund manager can serve to better address the governance challenge for all participants in a particular investment fund. The chapter first considers the two complementary functions of independent directors—providing specialized advice and expertise to the executive directors and monitoring executive decision-making—before discussing their duties as well as their effectiveness. It also examines the role of directors in general partner vehicles and the limitation on the effectiveness of independent directors.

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