Hedge Fund Boards and the Market for Independent Directors

We provide the first examination of hedge fund boards and the labor market for their directors. The majority of directorships are held by busy, independent directors, many of whom work for professional directorship firms. Busy directors have more reputational capital at stake, making them independent and credible monitors whose presence can certify fund quality to investors. Busy independent directors are more likely to be hired by high quality funds, and their departure from the board is associated with outflows of investor capital. Moreover, funds with independent directors are less likely to commit fraud or abuse their discretion to restrict withdrawals.