Helping new funds find their feet

Peter Hammerich

The asset management industry is growing fast. Gaining a foothold as a new player is nonetheless more challenging than ever.

- You need to have what it takes – it is as easy and as difficult as that. We turn down a number of prospective clients here at BAHR. They have not got what it takes. When we say no, that is the last we ever hear of the project. In most cases that means that they have not been able to get it off the ground, says Peter Hammerich, Partner and Head of the BAHR Asset Management & Private Equity group.

He chairs a group that is expanding continually. - Ten years ago you could provide legal advice on asset management with a couple of dedicated lawyers. These days, however, there is much to be said for having a larger team. We need to cover a lot of ground, including tax and structure, regulatory issues, compliance and fundraising, he says, before adding:

- The legal framework facing asset managers is becoming ever more complex and detailed. We have to be continuously updated, and we need to have a thorough understanding of the opportunities available to each asset manager, as well as their investment activities. We are now 25 lawyers and will be 30 by the spring. That sets us apart from our Nordic competitors, and makes us one of the largest teams in Europe.

- Bluefront Equity is one example of a newly established

Helping new funds find their feet

We have a total of 200 years of asset management law experience. This means that we have devoted well over 400,000 hours to this. That brings a certain level of expertise.

asset manager that may succeed. Simen Bjørnstad and Kjetil Haga are both under 40 years, but have extensive experience from seafood sector investments. No other asset manager is focusing on seafood. They are quite simply the first in Europe to pursue such a strategy. They have now launched their first fund, and it will be exciting to see where they go from here.

- Another example is Had an Ventures, headed by Ingrid Teigland Akay, which invests in the health sector. A further fairly recent and exciting entrant is Equip Capital, which is headed by Sverre Flåskjer. This team was formerly part of Herkules, but chose to go it on their own. These are some examples of names I expect us to hear more about in future. Hammerich also highlights teams with a longer pedigree, such as Norvestor, FSN and HitecVision. - These asset managers are becoming slowly and steadily more international, and are predominantly attracting international investors. In addition, these players are increasingly making their investments outside Norway, and setting up offices around Europe.

Success does not come easy

Hammerich believes that new private equity providers need to meet certain criteria in order to have a shot at making it in competition with existing domestic and international providers.

- You need the right team, with the right expertise. This cannot be taken for granted. As I mentioned at the outset, we are at times approached by people who do not inspire the necessary confidence. They represent an investment product that we would not consider investing in ourselves. This means that we are also unwilling to serve

as their advisors, he says, before adding:

- They may have the right people on their team, but lack the necessary experience and track record. In asset management, you are expected to have done it before. You should have a proven track record of investing in companies, developing them and completing a divestment transaction that reflects the value added.

Hammerich explains that it is difficult to raise capital from new investors from scratch. – You should have one or more investors onboard from the outset. Either by letting investors take ownership stakes in the asset management company, which is becoming increasingly common, or by bringing them in as early investors in the fund. Besides, on the topic of investors and investor networks, you need to have a realistic idea about how much capital the fund will raise, and ensure that the fund size is consistent with your investment strategy.

- And last, but not least: Setting up as a new asset manager requires immense dedication. You are committing yourself for 10 to 12 years, or in practice for life. This requires steadfastness and seriousness. You are managing other people’s money, and that level of trust needs to be earned – day in and day out.

Watchdog and trusted advisor

Hammerich points out that this may also be a source of conflict. – Regrettably, we note that quarrels and disputes are on the rise in asset management. The contractual framework governing the funds will typically include a no cause termination clause. This enables investors to terminate, by a qualified majority vote, the asset management company’s appointment as asset manager for the funds. This is a decidedly rare occurrence, but it does happen.

Once the fund is up and running, and BAHR has advised on structure, tax and systems, Hammerich and his colleagues will serve as watchdogs during the operating phase. – Some providers are regulated by the Financial Supervisory Authority of Norway. For them we secure full regulatory compliance. All providers are in practice regulated by investors. We are the watchdog ensuring that everything is done by the book. We tend to sit on the boards of funds or asset management companies, where we keep a close eye on developments. Besides, when the funds make investments, we hope to be awarded our fair share of the transaction instructions in competition with industry colleagues. BAHR excels when we can serve as a trusted adviser and are involved in the daily operation of the funds that we have helped establish, as well as in their ongoing asset management, and not least when our clients make new investments or divest existing holdings. It is of great benefit to have an in-depth understanding of the client’s business when assisting on transactions. This provides us with an advantage when we have

Peter Hammerich

assisted on the establishment of the acquiring or divesting fund, he says.

Bide your time

Hammerich has been watching the Norwegian asset management industry from the inside for 25 years. An industry that, according to him, has gone from the goldrush phase to the institutionalisation phase, with stable growth in new providers of private equity funds, hedge funds, real estate funds or other asset classes. One of the trends he has observed in recent years is family offices increasingly wanting to go it alone and manage their own investments.

- I believe that will prove challenging. The advantage of this DIY approach is that you save one layer of fees. It is, however, not straightforward to build a correspondingly competent team. Top teams cost money, and you will easily end up having paid the same.

Hammerich expects to see the establishment of additional new providers in Norway in the years to come, in the form of private equity funds, hedge funds and real estate funds. He has a final piece of advice for them:

- Becoming a successful asset manager requires patience. You need to bide your time. With time comes experience, and that is crucial. Take our group as an example. We have a total of 200 years of asset management law experience. This means that we have devoted well over 400,000 hours to this. That brings a certain level of expertise, he concludes.