Originally published in

August 25, 2015
In the media

Synergies of in-house legal counsel

Poseidon Retsinas, Legal counsel at Innocap, discusses the firm's customized managed accounts offering and the importance of its dedicated in-house legal counsel

Since June 2013, Innocap’s AuM (assets under management) has grown 67%, now standing at approximately $3.6bn. How? In early 2013, under the leadership of François Rivard (CEO), Innocap began to expand its offering and refine its mission.

The first stages of this process involved creating working groups, which combined members from each of the various teams at Innocap. The objective was to brainstorm and share ideas about the firm’s strengths and weaknesses, where each team sees opportunity and how to best serve clients. The theme of creating customised managed accounts for asset owners (selecting hedge fund managers, jurisdiction, legal structure, fund administrator and counterparties) ran through all working groups.

The results and ideas from these working groups were communicated to senior management which decided to create a truly flexible and customised managed account solution.

At the time, Innocap had two fund structures (Maltese SICAVs and Canadian LPs) using two fund administrators. Today, Innocap has five fund structures (Ucits, QIAIFs, Cayman Exempted Companies, Maltese Sicavs and Canadian LPs) across four jurisdictions (Ireland, Cayman Islands, Canada and Malta) with four fund administrators. A number of projects are in the pipeline to add fund structures and administrators.

Focus on legal

Innocap’s dedicated in-house legal team has been at the forefront of these changes as creating and deploying new fund vehicles is quite legal-intensive.

It is of significant benefit for a managed account platform to have a well-staffed, experienced and dedicated inhouse legal team as opposed to largely outsourcing the legal function. A platform relies greatly on legal counsel when launching and implementing a platform/fund vehicle. Once a vehicle is launched, there is ongoing legal work involved such as regulatory changes and interpreting/explaining contractual terms.

With an experienced in-house legal team, a platform can leverage skills and expertise and seek external counsel as and when needed on particular issues. The benefit to asset owners is that fund structures can be deployed more quickly and efficiently with less legal work being billed to the fund (the work handled internally by legal is embedded in the platform management fee).

Strong synergies are created when legal sits alongside other teams in that legal negotiation is focused on the terms which matter most. The result is to craft legal documentation which is tailored to best suit the needs of the organisation and ultimately better protect the asset owner. Turnaround time for legal work can be reduced since the legal team is in close communication with business personnel and is ready to focus its expertise and knowledge on priorities.

Legal with investors relations

The business of a managed account platform is substantially legal in nature since the product offered to asset owners is in large part a legal structure (for example a fund vehicle). From initial discussions with potential clients, Legal works with Investor Relations in looking for creative solutions to meet asset owners’ needs. Legal is often involved in discussions with asset owners in customising a structure and post launch, asset owners have access to Innocap’s in-house legal expertise. For instance, as asset owners’ needs evolve, Legal facilitates restructuring their investment vehicle. Innocap’s philosophy of customised managed accounts continues after an investment vehicle is launched.

Legal with integration/onboarding

Once a fund structure has been agreed, legal is deeply involved in the fund onboarding process (regulatory approval, licences, incorporation, prospectus drafting, negotiations with trading adviser, appointing service providers – fund administrators, transfer agents, auditors – negotiation with custodians, prime brokers, clearers and counterparties). Often, each step along the path to an eventual launch is interrelated and therefore close ties between legal, operations, risk and investor relations create synergies which make fund launches faster and more efficient. Innocap’s Integration Manager serves as the focal point and link between the different teams during the onboarding phase. Legal works closely with the Integration Manager – from a project management point of view, it helps to have a strong in-house legal function as information flows more freely and quickly between the legal team and other teams within the organisation.

Legal with operations

Legal works with operations in co-ordinating subscriptions and redemptions, as well as in establishing relationships with fund administrators, auditors, custodians and prime brokers among other service providers. Working closely with operations makes legal conscious of operational concerns. When poorly understood, subtleties can create onboarding delays and result in operational risk. A simple example is the timing for margin calls – many prime brokers and clearers will draft these provisions in their favour such that the fund must provide margin immediately following a demand. In reality, these transfers take some time to process and must fall neatly into the daily routine of the operations team. In some cases, the parties must reach a common ground and accommodate one another to find a mutually agreeable solution.

Legal with risk

Early in the fund onboarding process, legal and risk work together to draft the investment management agreement, and in particular the investment guidelines which a trading adviser retained by the Innocap platform will adhere to. Legal and risk also collaborate in preparing offering documentation regarding strategy description. Legal can leverage the knowledge and expertise of risk to negotiate better contractual protections tailored to the strategy and risk profile of the fund (terms in investment management agreements with trading advisors as well as in fund trading documentation with counterparties).

In the Ucits space, legal and risk often work together to “Ucits-ise” a fund (onboarding a trading advisor whose strategy is not currently Ucits compliant into a Ucits fund structure). This involves an intimate understanding of the Ucits rules and the strategy of the trading advisor to create an investment strategy which remains faithful to the flagship fund while being Ucits compliant.

Legal with compliance

Legal and compliance work hand-in-hand to ensure compliance with laws, regulations and requirements. Innocap acts for funds in four jurisdictions (Ireland, Cayman Islands, Canada and Malta) and is registered as an AIFM, and is SECand CFTC-registered. Legal and compliance often work together in crafting comprehensive and practical policies and procedures that help ensure proper governance thereby reducing risk. Moreover, legal and compliance hold an open dialogue and meet at least once a month to discuss current/future challenges.

An example of the excellent partnership between legal and compliance is the implementation of Fatca (now moving towards the Common Reporting Standard). Work on the Fatca project began shortly following the enactment of initial US legislation in 2010 and involved reviewing legislation, staying abreast of industry commentary and monthly calls with fund administrators to follow progress. Legal and compliance collaborated to tailor a compliance programme, policies and procedures; update all offering documentation; and co-ordinate with fund administrators to ensure that adequate due diligence and reporting was in place.

Legal with it

Innocap sees collaboration between legal and IT as the next step in the evolution of managing legal risk and legal information. Legal and IT are working together to code all fund agreements into Innocap’s proprietary information systems.

The contractual fields to be coded include agreement type, contracting party name, dates and key terms such as termination/default provisions or margin timing. This codification process will make information regarding contractual agreements readily available to all Innocap teams and be subject to deeper analysis. Moreover, it will allow markers to be added to information systems such that when key events occur, the impact on contractual agreements can be highlighted and flagged quickly. This reduces the risk that an event will go unnoticed or unreported to legal and compliance. By having triggers and notifications in place, legal is better ready to respond to contractual issues and provide solutions.

Poseidon Retsinas joined Innocap in 2010. He was formerly an associate in the Finance and Capital Markets Group at Clifford Chance LLP in London where he specialised in derivatives. He is a member of the Quebec Bar and holds an MSc in Law and Accounting from The London School of Economics and law degrees (B.C.L./LL.B) from McGill University.