The Investment Company Institute (ICI) and Independent Directors Council (IDC) issued a white paper (the “White Paper”) designed to assist directors of registered investment companies (“funds”) in carrying out their risk oversight responsibilities. The White Paper emphasizes that fund advisers have primary responsibility for risk control which fund boards oversee in fulfillment of their general fiduciary duties, and stresses that there is no uniform approach to board risk oversight, which will vary depending on a fund’s particular circumstances. The White Paper reviews approaches to identifying and categorizing fund risks and describes adviser risk management practices and different board mechanisms for overseeing risk. Appendices to the White Paper provide (a) topics for board/adviser discussion of risk oversight, (b) a discussion of investment risk, related analytics and adviser risk management practices, (c) a glossary of risk terminology and (d) a list of publications and websites with additional information on risk management. Among other things, the White Paper recommends that fund boards periodically reevaluate risk management oversight practices and suggests (1) including risk oversight in the annual evaluation of board effectiveness; (2) considering risk oversight as part of any long-term strategy or planning session; (3) seeking feedback on risk oversight approach from third parties, such as consultants, external auditors, or fund or board counsel; and (4) participating in continuing education opportunities to stay abreast of industry and regulatory developments, including in the area of risk management and oversight.
Alert October 11, 2011