New Managers October 2012

47N - Do turkeys vote for Thanksgiving?

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Do turkeys vote for Thanksgiving?

47 Degrees North Capital Management is a specialist alternative investment firm, and a pioneer in early-stage hedge fund investing. It was selected as one of three successful candidates out of 97 applicants to manage the emerging hedge fund managers program at CalPERS. 47N is a leading proponent of corporate governance in the hedge fund industry; so the objective of this series of articles is to discuss and inform on current corporate governance issues.

Fraser McKenzie

Everyone knows the answer to that one; turkeys don't vote for Thanksgiving. So why should we expect hedge fund managers to put investors' interests ahead of their own interests - especially if events take a turn for the worse? When drafting hedge fund constitutive documents and the offering memorandum, why wouldn't a manager stack the odds in their favour? After all, when it comes to investing, that's what we pay them to do.

During the fund documents drafting process lawyers typically ask the manager to make decisions about key control features - ones that might allow the manager to exert their will over shareholders in the event of a disagreement say, to wind down the fund. Of course, the self-interested manager opts to keep control, often unaware of the corporate governance issues that can arise.

For drafting lawyers, whose fees are often paid directly from the manager's pocket until reimbursed by the fund after launch, there is confusion about where their loyalties......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.