In 2009, the late and great John C. Bogle, founder of The Vanguard Group, wrote a passionate and persuasive article entitled ‘The Fiduciary Principle: No Man Can Serve Two Masters’. In this piece, Bogle called for the restoration of the principles of ethical responsibility and fiduciary duty within investment funds governance. Mr Bogle recognised the challenge of maintaining the integrity of investment fund governance. Many academics, principally in the US, have also explored investment fund governance challenges in the context of a disconnect between the legal and regulatory constructs that prevail in the sector (i.e. the investment fund appoints the investment manager and is regulated accordingly) versus the practical reality within which investment fund boards operate (i.e. the investment fund is a product of the investment manager1 and all of the key appointment and related decisions are controlled by the investment manager) (Mundheim, 1967, Ambler, 2005, Radin and Stevenson, 2006, Roiter, 2015, Cullen, 2011, Cullen and Brennan, 2017). These regulatory challenges are exacerbated in a European context where, often the domicile of the investment fund and the domicile of the investment manager are different. Investment fund boards must navigate these challenges, putting investor protection at the heart of what they do while ensuring regulatory compliance in the jurisdiction of domicile.

In 2014, we developed a risk-based investment fund governance framework by merging rigorous academic research in the area of IFG (Cullen, 2011) with the practical and varied investment fund director experience of Mr Frank Ennis, garnered across several fund jurisdictions over many years. In 2015, we were delighted to collaborate with Deloitte in offering the framework to a wider audience through our joint paper: The Risk-Based Oversight Framework for Investment Funds (hereafter “Risk-Based Oversight Framework”). As discussed in that publication, the Risk-Based Oversight Framework can be implemented by investment fund boards and/or those charged with the governance of funds.

In 2019, reflecting on feedback regarding the application of the framework from discussion with industry and a fundamental objective of creating a governance framework that reflects the practical reality of how investment funds exist and operate, we worked to enhance the framework with an IFG Toolkit. We have developed this Toolkit to assist investment fund and management company boards in building an investment fund governance framework that is best in class. The Toolkit builds on the Risk-Based Oversight Framework. In most cases directors join fund boards after a product has been conceptualised and created; the appointment usually coincides with the investment fund product’s (IFP’s) legal launch. Moreover, many directors join investment fund boards well after IFP launch, inheriting the governance framework that was created or indeed has evolved since the IFP launch.

1. Investment managers when launching a new IFP, in ensuring that investor protection is at the core of the IFP launch and the related governance framework put in place for the IFP;
2. Investment managers in developing a global, consistent approach to IFP governance;
3. Investment fund directors who join investment fund boards after the IFP launch to assess the effectiveness of the governance framework in place;
4. Investment fund directors to effectively leverage, rather than replicate poorly, the day to day management activities of the IFP which are conducted by the investment manager, administrator, distributor and other service providers to the IFP; and,
5. Investors in their due diligence of the governance framework for target investment funds.

While the IFG Toolkit focuses on the investment fund board, it can be used by management companies responsible for the governance of IFPs under management regardless of legal structure. It is important that all IFPs are regulatory compliant. Like the Risk-Based Oversight Framework, the IFG Toolkit purposely does not interpret the various regulatory requirements that applies to funds across jurisdictions. Rather, the IFG Toolkit can be implemented across jurisdictions within the context of complying with regulatory requirements of a fund domicile. The Toolkit is presented in Steps with explanatory narrative and sample outputs, thereby providing a systematic, easy to use blueprint for those committed to investor protection. The Toolkit has recently been updated to reflect further lessons from implementation. We will continue to evolve the framework and welcome any feedback.