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Independence and focus of Luxembourg UCITS fund boards


  • Jan Jaap Hazenberg

    () (LSF)


The investment fund governance frameworks of the U.S., the largest fund domicile globally, and Luxembourg, the second-largest domicile, differ significantly. U.S. funds have mandatory independent directors and these directors are empowered to be the watchdogs of the fund investors, negotiating fees with the fund management company on their behalf. This is not the case for Luxembourg funds, established in accordance with the E.U. UCITS Directive. This study uses a sample of Luxembourg UCITS funds and shows that, although there is no regulatory requirement, approximately half of the sample funds have appointed at least one independent board member. Among Anglo-Saxon fund promoters of these Luxembourg funds, the level of independence is higher than among continental European promoters and has increased in the past decade. In that same period, continental European promoters have decreased the level of independence of their funds boards. A survey among board members of the sample funds showed that, in absence of the requirement to negotiate fees with the fund management company, Luxembourg boards give relatively low priority to costs, which they see as an area that is primarily the prerogative of the promoter. That this is irrespective of whether the board has independent board members, is consistent with earlier quantitative research, that did not provide consistent evidence that funds with more independent boards have lower costs. "Keywords: "" Investment funds; European Union; Governance; Board of directors; Board independence;Fund costs."""

Suggested Citation

  • Jan Jaap Hazenberg, 2012. "Independence and focus of Luxembourg UCITS fund boards," LSF Research Working Paper Series 12-15, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:12-15

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    References listed on IDEAS

    1. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    2. Jan Jaap Hazenberg, 2012. "Effectiveness of independent boards of Luxembourg funds," LSF Research Working Paper Series 12-11, Luxembourg School of Finance, University of Luxembourg.
    3. John C. Adams & Sattar A. Mansi & Takeshi Nishikawa, 2010. "Internal Governance Mechanisms and Operational Performance: Evidence from Index Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 1261-1286, March.
    4. Cremers, Martijn & Driessen, Joost & Maenhout, Pascal & Weinbaum, David, 2009. "Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(06), pages 1345-1373, December.
    5. Sophie Xiaofei Kong & Dragon Yongjun Tang, 2008. "Unitary Boards And Mutual Fund Governance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(3), pages 193-224.
    6. Oecd, 2005. "White Paper on Government of Collective Investment Schemes (CIS)," Financial Market Trends, OECD Publishing, vol. 2005(1), pages 137-169.
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    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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