Fund formation holds few, if any, secrets for Reed Smith partner Alexandra Poe. She and her firm have formed funds all over the world, with Poe having been an active practitioner for 27 years. Reed Smith’s advanced international tax practice also gets involved in the fund formation process. Domiciles have included all the usual ones – Delaware, Cayman, Ireland, Luxembourg – and some more unusual ones, such as an Abu Dhabi fund recently set up for a natural resource investor. Poe has also set up private equity-style structures for alternative hedge fund strategies such as trade finance and shipping. Other fund structures have included offshore, UCITS and all kinds of private funds. Poe says that hedge funds’ indications of interest in setting up '40 Act funds are high, but that the associated overheads of running a regulated product designed for retail investors are also high, which may explain why '40 Act funds have not yet gathered much momentum amongst US hedge funds.
Another new development that is seeing somewhat subdued interest so far from hedge funds is their newfound ability to advertise, which is only one of many aspects of marketing and investor relations that Poe advises on. The JOBS Act allows hedge funds to advertise but there has not yet been any surge of interest in doing so, and Poe suspects that there may be sound grounds for funds’ apparent caution. Poe counsels that funds should thoroughly investigate the wider implications of advertising before rushing in. The ability to advertise depends on following extra compliance procedures, which may include collecting personal financial data such as tax returns from investors. Holding such data in turn can have serious ramifications for privacy policies and procedures, so managers need to feel confident that they can keep the data private, something that can entail extra costs. Poe and three Reed Smith colleagues have already shown some thought leadership by writing a blog on the data privacy implications, which they intend to update as the situation evolves.
Poe has been involved in seeding hedge funds for many years, dealing with some of the world’s biggest hedge fund allocators and being asked to sit on a seeding arrangements panel for the Wharton Hedge Fund network. Her very first hedge fund client was a distressed and convertible arbitrage fund run by Paul Giordano and seeded by PAAMCO, which emphasises early-stage managers in its portfolios. Poe has represented both managers and seeders, who have included retired hedge fund managers seeding their protégés. Poe advised former SEC chairman Richard Breeden on forming his activist hedge fund, which pursued activist strategies in the US and Europe, and was seeded by the world’s largest pension fund, CALPERS, which has its own specialised criteria when doing these deals. Poe also handled advisor registration and compliance for Breeden.
Given her familiarity with younger and smaller hedge funds, Poe can appreciate that some of them cannot initially afford to retain a law firm for regulatory matters, such as registration, compliance and ongoing reporting. Poe also recalls that some hedge funds needed to use non-law firms for regulatory advice in order to cut adviser registration and compliance costs after the credit crisis.
But as funds grow Poe thinks they will benefit from using a law firm to look at areas including side letters, compliance, and manuals, which may even contain policies that are not needed. “The most dangerous thing is to have a manual that is not adequately customised or out of date,” she says, also observing that although all registered advisers now need to have a chief compliance officer (CCO), this person may be wearing multiple hats, even in firms with a headcount of 50 or more. Consequently Poe suggests that lawyers can help to prepare funds for SEC examinations, and stresses that firms should try to prioritise hiring lawyers to brush up ahead of their very first SEC exam.
Poe has structured managed accounts both for seeders and other hedge fund allocators. Rather than taking a cookie-cutter approach, Poe tailors the structures to each client. “Everybody wants to look like Lyxor,” she says, but clients need to unbundle the different elements of a managed account platform to work out what they really do want. As one-time chief legal officer for managed accounts at Prudential Financial, she advised on restructuring the entire managed accounts platform, which was then sold to Wachovia. The open architecture structure changed the whole way managed accounts were delivered, allowing for private labeling for the ING platform, Sun America, and trust banks. Poe has also helped administrators and third-party service providers such as Butterfield Fulcrum and others to create “turnkey solution” platforms. Currently Poe is working with SICA Wealth Management and IEP Asset Management to create a unified managed accounts platform where ultra-high net worth individuals can access a variety of alternative investments.
Poe’s practice has spanned numerous other areas. In mergers and acquisitions, she advised Citi on integrating its acquisition of Legg Mason. She has advised pension and private wealth allocators on due diligence, including a teleseminar educating ERISA funds about hedge fund due diligence. Poe also advises on fund governance. Unlike some law firms, Reed Smith does not provide fund directors or director services. But Poe can easily recommend other directors, and says that clients who have hand-picked individuals to be independent directors now have a much better result. This is particularly the case when crises crop up and require more input from directors.
As well as being an angel donor to 100 Women in Hedge Funds, Poe’s pro bono work includes her activities with philanthropic group High Water Women. Poe co-founded the organisation, which encourages its members to volunteer time as well as money. Economic empowerment of women and youth is the mission of High Water Women (HWW), and microfinance is one way to help achieve this, particularly in less economically developed countries. The whole HWW team have worked closely with microfinance networks, and provided consulting on the ground in countries ranging from Ghana and Liberia in Africa, to Columbia and Guatemala in South America, and the Phillipines in Asia. The aim is to provide consultancy that transfers knowledge about good risk management practices so that microfinance businesses become self-sustaining. Reed Smith has set up a social impact finance group that advises social impact funds, which tend to have a private equity structure. In October 2013, HWW held an all day conference in New York dedicated to social impact investing. Poe thinks that hedge funds that can brand a product as “social impact” could be well positioned to attract tickets from family offices and foundations, which generally have flexibility to invest according to their values.
• Received a B.S. from Cornell University.
• Received a J.D. from New York University.
• Partner in Reed Smith.
• Leader of Fund Formation and Counseling Practice.
• President and founding director of High Water Women Foundation.
• Angel donor to 100 Women in Hedge Funds.
• Served on Private Funds Committee of the Association of the Bar of the City of New York (2008-2011).
• Served on the Investment Adviser Regulation Committee of the Association of the Bar of the City of New York (2005-2008).
• Served on the Women's Investment Management Forum (1993-2008).