The role of the independent directors varies from fund to fund and the actual duties and responsibilities are outlined in the fund documents.

The board is a powerful nexus of authority over service providers and has oversight responsibility over these groups. Inevitably conflicts of interests will arise between these groups and independent directors play a vital role in resolving these conflicts in the best interests of investors and creditors.

Independent directors are not involved in the day-to-day operations of the fund and it is not realistic that the single mind of any director can truly independently understand and monitor the full range of risks and complexities in today’s highly-sophisticated hedge fund. Accordingly, and since the fund typically does not have employees, the various duties and responsibilities are delegated by contract to reliable and competent service providers; typically the investment manager, administrator, auditor and legal counsel. Without being antagonistic, independent directors must have the skills to directly communicate in confidence with these groups, often enlisting the services of another group to assist in monitoring the performance of another.

Independent directors can also provide additional resources for investors and service providers and must have the capability to make a meaningful contribution and add real value to fund operations as and when needed.

Independent directors must have a proper understanding of their role in relation to the other service providers engaged by the fund to avoid meddling and micromanaging that distract service providers, consume inordinate amounts of time, and interfere with the orderly operation of the fund.

However, it is also very important to note what independent directors are not.

Independent directors are not a substitute for proper due diligence and professional skepticism of investors, creditors, service providers and regulators. Independent directors are not guarantors of good results, preventers of malfeasance, misfeasance or nonfeasance of others. Independent directors are entitled to rely, in good faith, on corporate documents and experts to a significant degree in making their business judgments.