A small group of Cayman Islands “jumbo directors” are sitting on the boards of hundreds of hedge funds.

"It is the “Walmart model” of governance, said Kevin Ryan, former head of hedge fund research for ABN Amro, and will be the next big scandal to hit the industry. “We have specialist directorship firms building obscenely large portfolios of directorships without even earning a rebuke from the Cayman’s regulator.” The numbers will invite comparisons to the US mutual fund scandal last decade and the UK’s “Sark lark” in the late 1990s, where individuals were criticised for taking dozens of appointments.

"The individual employee who serves as a director will be paid a salary (and bonus perhaps) by the service provider for whom he or she works. The directors’ fees will typically not go to the director but to the service provider.

. . .

the service provider is typically not liable for the acts or defaults of the employee as a director of a client company. Good for the service company and its owners; not so good for the client or even the employee. Little wonder that the offshore director is looked upon with derision as a man of straw by outsiders (and maybe by insiders too). As an employee, he is unlikely to have significant assets so there is no point in suing him for breach of duty, negligence etc. And the service company that put him forward and collected the fees cannot be successfully sued under the Paget Brown principle. In the context of the offshore financial business, this has many scratching their heads."

"might offer certified copies of the passports of that company’s directors. That looks reassuring, but even with genuine passport copies you are no closer to knowing who really owns the company or its assets. These directors are probably professional nominees who work for hundreds of such corporations. Typically a nominee director will route all queries via a company attorney who has contact with the real people – and when crime fighters come looking, the attorney will hide behind attorney–client privilege and claim they cannot reveal the information."

"I do not want to invest in a fund with an assembly line management structure. I do not currently have any funds so managed and from now on Cayman Islands is a red flag to me."

