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The fund's governing body - Coggle Diagram
The fund's governing body
In law and regulation there must always be a body with ultimate responsibility for the performance of the investment fund
The governing body is that person or group of people ultimately charged with managing the fund
Where the fund is a company, the company will on those duties through its board of directors
Where the fund is a LP, the role will be assumed by its GP
A unit trust will be governed by its trustee
Responsibilities
Fund directors, howsoever that role is established within the fund structure will generally consider their responsibilities through various categories
Fiduciary duties
Fiduciary duty owed to the fund and its investors
Most common is to act in the interests of the fund and to act with skill, care and diligence
These duties would ultimately fall to be judged by a court of law as they are enshrined in law, whether included through statute or resting with common law but many regulators will consider their application when considering whether any regulatory laws or rules have been broken
Statutory duties
Contained within the relevant statues underpinning the legal structuring of the fund
Recently fiduciary duties have been expressly inserted into various statutes, formally codifying what was best practice before
Functionaries will be granted the responsibility to take care of assets, avoid conflicts of interests, to communicate with investors and to seek permissions from investors in certain circumstances
A breach of any of these obligations can result in the functionaries being found guilty in civil and criminal law which may result in prohibitions, fines, custody and other financial penalties
Regulatory duties
Although enshrined in financial services legislation, rules and other regulatory codes may create additional responsibilities surrounding the format and provision of information to investors; such as additional disclosures in the financial statements or provision of key information documents
Contractual duties
When an investors subscribes to the fund it enters into a legally binding arrangement with the fund and thus its governing body
The governing body agrees to invest those monies in accordance with the terms of the funds governing body
Wherever the duty lie, the standard utilised to determine whether the duty has been met or whether it has been breached will remain broadly the same
Typically that standard is a blend of both objective and subjective considerations, this means that not only will a functionary be judged based upon what a reasonable man would have expected of someone in that position but they will also be judged upon their own experiences and skills
Eg while all directors may reasonably be seen to have been remiss in the misstatement of the funds financial statement and guilty of a breach of duty, where one of those directors was also an accountant, the scale of fault found on his part may be somewhat greater than that of a director whose personal experience lay elsewhere
Fault will generally be established established upon the following criteria which rest in law
Civil considerations
Negligence
Conduct that falls below the standards of behaviour established by law for the protection of others against unreasonable risk of hard
A person has acted negligently if they have departed from the conduct expected of a reasonably prudent person acting under similar circumstances
Default
An omission of failure to do that which is anticipated, expected or required in a given situation
Distinguishable from negligence in that it does not involve carelessness or imprudence with respect to the discharge of a duty or obligation but rather the intentional omission or non performance of a duty
Breach of duty
Any act which is in violation of the duties established in law or through fiduciary duties owed to the investors
Breach of trust
Any act which is in violation of the duties to act in the terms speficied in agreements such as the offering documents and other constitutive documents in addition to law and rule
Criminal considerations
Fraud