The crypto fund space is maturing very quickly as interest in digital assets increased exponentially over the past year. More and more institutional investors are considering an allocation to the asset class and a number of listed entities have even invested a percentage of their treasuries in Bitcoin and other assets.
Traditionally the majority of crypto funds were similar to startups with teams of about 6 people and only 25% reporting that they had independent directors on their board. This is however quickly changing as shown in the 2020 PWC and Elwood Crypto Hedge Fund Report which showed an increase from 25% of boards having independent directors in 2018 to 43% in 2019.
So why does your Crypto fund need an independent director
Firstly, an independent director can provide comfort to investors. The role of a non-executive director is to oversee the work of the investment managers, to ensure that the fund’s objectives and risk appetite are respected. Fund managers trade investors’ money within the parameters drawn from the fund’s offering materials. Independent non-executive directors on the board of the fund perform an oversight role over how their assets are managed. This gives the investors the peace of mind that there is a party independent of the investment manager overseeing the operations and that assets are being managed in line with the offering materials.
Given the recent increase in institutional interest in the asset class, this independent oversight has become even more important and investors will be scrutinizing the funds governance policies and procedures even further.
Secondly, the experience and knowledge the independent directors bring to the board. The digital asset space is still very new with many new service providers and challenges that most directors and teams have not yet faced or even considered. To this end, it’s extremely important to appoint directors with experience in digital assets who can save teams not only time when considering vendors, but also ensure they have the appropriate policies, procedures and controls in place. It’s very important to ask your directors whether they have experience dealing with custodians, exchanges, DeFi and crypto fund administrators. There is a lot of complexity to navigate in the space and the right directors can add a lot of value to the team. An added bonus would be if they have experience in accounting, tax and auditing of digital assets as this could save the team lots of time and unnecessary hassles.
As the digital asset industry matures the role of the independent directors will become even more important as they help to grow the entire space to eventually eclipse the traditional funds space. This is why it’s extremely important to appoint independent directors to your board and also to ensure you appoint the right individuals.
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