21 January 2025 How to strengthen corporate governance in investment funds

As directors of investment funds, it is imperative to stay ahead of the latest trends and challenges in corporate governance.  

Drawing insights from discussions around the boardroom table, Managing Director James Tracey outlines some of the critical areas of focus for enhancing governance frameworks within investment funds, and how Oak is supporting this critical aspect of fund management. 

Enhanced regulatory oversight 

Globally, regulatory bodies have intensified their oversight of investment fund processes in recent years, underscoring the importance of transparency and risk management.  

Frameworks such as the European Union’s Alternative Investment Fund Managers Directive (AIFMD) and the U.S. Securities and Exchange Commission’s (SEC) rules on liquidity risk management have introduced stringent requirements for fund managers.  

Directors must ensure that their funds comply with these regulations through robust governance structures and meticulous record-keeping.  

This compliance not only fulfils legal obligations but also demonstrates a commitment to best practices in governance. It is this last aspect that can be the sting in the tail for boards – as there is a general expectation that global best practice is understood and considered, at least in terms of the principles of extra-territorial regulation. 

Oak actively engages with industry bodies and regularly participates in shaping regulation through consultation responses and monitoring adoption, and the implementation of regulation in practice. 

Increased focus on environmental, social, and governance (ESG) factors 

The integration of environmental, social, and governance (ESG) factors into investment decision-making has emerged as a pivotal trend. Investors and stakeholders are increasingly prioritising the sustainable and ethical impact of their investments.  

Directors must guide fund managers to incorporate ESG criteria into governance frameworks, which includes establishing policies for ESG risk assessment, engaging in active shareholder advocacy, and ensuring comprehensive ESG disclosures.  

Adapting to an ESG-focused governance model requires significant adjustments in strategy, monitoring, and reporting. 

Oak has partnered with industry experts to create internal frameworks and forums for ESG monitoring and ESG initiatives. Having a service provider that understands the importance and application of ESG in practice can be highly supportive for non-executive boards in setting ESG agendas.   

Strengthening board independence and expertise 

Effective governance is heavily dependent on the independence and expertise of the board.  

It is crucial for investment funds to have boards that are not only independent of management, but also possess diverse skills and experience relevant to the fund’s operations. Directors should advocate for rigorous selection processes, continuous board training, and clear delineation of roles and responsibilities.  

Strengthened board governance enhances the board’s ability to provide oversight, challenge management decisions, and protect investor interests. 

Oak provides directors where suitable, as part of a complementary board of directors that can demonstrate breadth, independence and substance. 

Technological advancements and digital assets 

The rapid advancement of technology presents both opportunities and challenges for investment fund governance.  

Technologies like artificial intelligence and blockchain can improve efficiency, transparency, and security in fund processes. However, increased reliance on digital infrastructure also heightens the risk of cyber threats. Directors must ensure the development of comprehensive digital asset strategies, including robust data protection measures, regular security audits, and incident response plans to safeguard sensitive information and maintain investor confidence. 

Oak has a leading technology infrastructure with specialist digital asset, AI and cloud technology technicians. The outsourcing of administration is a significant decision for boards to make and whilst many firms can speak to current technology, too few are looking further into the future to ensure security and properly leveraging new technology. 

Read more about Oak’s cybersecurity efforts. 

Managing conflicts of interest 

Conflicts of interest pose a persistent challenge in investment fund governance. Effective management of these conflicts is essential to maintain trust and integrity.  

Directors should ensure the implementation of policies and procedures that identify, disclose, and mitigate potential conflicts.  

Key measures include forming independent committees, enhancing decision-making transparency, and fostering a culture of ethical conduct. Proactively addressing conflicts of interest helps align the interests of managers and investors, therefore enhancing the fund’s reputation and performance. 

Oak has a mature framework of manuals and policies for fully administered companies that ensures not only compliance with relevant regulation, but also guarantees best practice. 

Enhancing stakeholder engagement 

Engaging with stakeholders, including investors, employees, and regulators, is incredibly important.  

Effective stakeholder engagement involves regular communication, comprehensive reporting, and responsiveness to stakeholder concerns. Directors should foster an inclusive and participatory approach to governance, considering the views and interests of all stakeholders in decision-making processes.  

This approach can strengthen relationships while enhancing accountability and transparency. 

Oak support several clients who have effective engagement and dialogue with stakeholders, particularly through the annual general meeting. 

Governance in the context of globalisation 

Operating in a globalised market presents the challenge of navigating diverse regulatory environments and cultural expectations.  

Effective governance requires a strong understanding of international laws, standards, and practices. Directors must adapt governance structures to comply with local regulations, manage cross-border risks, and ensure consistency in global operations.  

A flexible and adaptive approach to governance is essential for addressing the complexities of operating in multiple jurisdictions. 

A global mindset and a local focus underpins Oak’s approach to client service, which is particularly important for clients who themselves also have a global footprint. 

Promoting diversity and inclusion 

Diversity and inclusion are critical elements of effective corporate governance.  

Investment funds increasingly recognise the value of diverse perspectives in enhancing decision-making and driving innovation.  

Directors should advocate for improving the representation of underrepresented groups on boards and in leadership positions while fostering an inclusive culture.  

Promoting diversity is vital for achieving long-term sustainable growth and enhancing the resilience of investment funds. 

Oak ‘be yourself at work’ initiative, celebrates authenticity and fosters an environment where every individual feels empowered to bring their true selves to work—free from fear, judgment, or discrimination. This is an example of the approach that firms should take to support their people to leverage the benefits of a modern, diverse workforce. 

Conclusion 

In conclusion, the landscape of corporate governance for investment funds is evolving rapidly, driven by global regulatory changes, technological advancements, and shifting stakeholder expectations.  

Oak supports our clients in addressing these key trends and challenges in all jurisdictions. Directors are therefore able to strengthen their governance frameworks, enhance operational resilience, and build greater trust with their stakeholders.  

Oak has strategically positioned offices in jurisdictions which are seen as gold standard in the provision of fiduciary services in the international markets. Being jurisdictionally agnostic, our teams can work with clients to meet their goals and requirements regardless of domicile. 

View our fund administration services here.