Insights private funds by Lawdragon

lawdragon insights

[ private funds ]

At the core of Private Equity SJ Berwin has combined with leading Asia Pacific firm King & Wood Mallesons to create a genuine new choice among the global elite legal brands. As King & Wood Mallesons SJ Berwin we now offer a network of more than 2,700 lawyers in 31 locations across the world, including China, Hong Kong, Australia, Europe, the Middle East, Japan, and the US. From fund formation to buyouts, investments, exits and secondaries, King & Wood Mallesons SJ Berwin remains at the core of the industry. Our commitment to private equity and our clients is still our number one priority. Follow us on Twitter for private equity updates @KWM_SJBerwinPE and read our weekly blog #PEComment www.kwm.com King & Wood Mallesons LLP is an English limited liability partnership registered in England under no OC313176. Authorised and regulated by the Solicitors Regulation Authority. A list of the members of King & Wood Mallesons LLP is open to inspection at 10 Queen Street Place, London EC4R 1BE, its principal place of business and registered office. Member firm of the King & Wood Mallesons network. See www.kwm.com for more information. 23121

LAWDRAGON INSIGHTS [ PRIVATE FUNDS ]

[4]

PUBLISHER’S NOTE

[6]

LETTER FROM THE MANAGING EDITOR

[ 7]

PRIVATE FUNDS: AN EDITORIAL INTRODUCTION

[9]

A BRAVE NEW WORD Actis Legal Director Peter Olds discusses “the new normal” for fund counsel

[ 13 ]

THE WORLD’S LEADING FUND PRACTICES CLEARY GOTTLIEB STEEN & HAMILTON...13 CLIFFORD CHANCE...15 DAVIS POLK & WARDWELL...19 Technical Insights: Nora Jordan – The Regulatory Landscape...21 Technical Insights: Leor Landa – Alternative Strategies for Funds...25 DEBEVOISE & PLIMPTON...29 Technical Insights: Erica Berthou – Emerging Markets...35 Technical Insights: Jordan Murray – Alternative Strategies for Funds...39 KING & WOOD MALLESONS SJ BERWIN...45 Technical Insights: Ed Hall – Investors and Fundraising...49 KIRKLAND & ELLIS...55 LINKLATERS...59 MACFARLANES...61 O’MELVENY & MYERS...65 Technical Insights: Larry Sussman – Emerging Markets...69 PAUL WEISS RIFKIND WHARTON & GARRISON...73 Technical Insights: Marco Masotti – Developments in Fund Structuring...77 PROSKAUER ROSE...81 Technical Insights: Sean Hill – Alternative Strategies for Funds...87 ROPES & GRAY...91 SIMPSON THACHER & BARTLETT...95 Technical Insights: Tom Bell – Industry Overview and Development...101 Technical Insights: Jason Glover – Developments in Fund Structuring...107 SKADDEN, ARPS, SLATE, MEAGHER & FLOM...111 Technical Insights: John Caccia – Investors and Fundraising...115 WEIL GOTSHAL & MANGES...119 Technical Insights: Ed Gander and Jonathan Kandel – Developments in Fund Structuring...123

[ 130 ] THE HONORABLE MENTIONS [ 133 ] REGULATORY ROUNDUP: A Q&A WITH TRAVERS’ PHIL BARTRAM [ 143 ] INDEX

THE LAWYERS FOR CLIENTS WHO MEAN BUSINESS. With a world-class litigation practice and a fast-growing corporate group, Boies, Schiller & Flexner’s 250-plus attorneys regularly serve as lead counsel on complex, high-profile matters around the globe.

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AWYERS GONE GLOBAL. THAT’S THE CLEAR AND RESONATING MESSAGE OF LAW IN THE 21ST CENTURY. When mortgages fail in Rancho Cucamonga (where?!), investors in LonPUBLISHER/CHIEF EXECUTIVE OFFICER Katrina Dewey katrina@lawdragon.com

don suﬀer. When BP spills oil oﬀ New Orleans, shareholders worldwide shudder. When China’s economy gets a cold, lawyers in New York sneeze. From that perspective, it makes perfect sense that we’ve decided to

EDITOR-IN-CHIEF John Ryan john@lawdragon.com

publish the ﬁrst truly global guide to elite private lawyers, as selected

MANAGING EDITOR Catherine McGregor catherine@lawdragon.com

funds lawyers.

STAFF BOX

SENIOR CORRESPONDENT Cat Rodgers cat@lawdragon.com RESEARCH ASSISTANT Lora Davies ART DIRECTOR Sammy Elfatrany sammy@elfatranydesign.com

by the world’s top in-house counsel. Our initial guide focuses on private The Lawdragon team has been covering excellence in lawyering since the ‘80s, from New York and California, with a pretty good idea of the top talent in the U.S. Lawyers are our business and have been since long before we formed Lawdragon in 2005, with its eponymous Lawdragon 500. For years, we have been asked when we were going global. But we’ve had a philosophy from which we’ve never strayed: If we’re going to do

ASSISTANT EDITOR Jeff Schult jeff@lawdragon.com

something, we’re going to do it better than everyone else. And we didn’t

MARKETING COORDINATOR Melissa Chan melissa@lawdragon.com

of Haymaker Street to Jian Guo Men Wai Avenue in Beijing until we had

_____________________________________________

feel we were well positioned to lead you through the nooks and crannies the editorial team we put in place this year. None of us had any desire to create another directory. Lawdragon was

CHIEF FINANCIAL OFFICER Mark Bucklin mark@lawdragon.com

happily building a content and legal information platform for lawyers, in

CHIEF TECHNOLOGY OFFICER Rob Winter rob@lawdragon.com

ness. So instead of a directory, we decided to create a global online guide

CONTRIBUTING EDITOR Xenia Kobylarz xkobylarz@gmail.com LAW SCHOOLS EDITOR Margot Slade margot@lawdragon.com LAW SCHOOLS SENIOR CORRESPONDENT James Langford james@lawdragon.com EDITORIAL ASSISTANT Michelle Fox michelle@lawdragon.com KNOWLEDGE RESOURCE MANAGER Don Boman don@lawdragon.com

part because we doubt the authenticity and utility of the directory busito share the “Insights” of in-house counsel on the best lawyers in emerging practices and markets. Insights will become a quarterly guide to the best lawyers worldwide, and will also be distributed in print to decision-makers in each subject ﬁeld. We would love your feedback on our guide. We think it’s special, but you’d expect that, wouldn’t you?

Sincerely yours,

LAWDRAGON INC. 747 3rd Avenue, 2nd Floor New York, NY 10017 © Lawdragon Inc. 2014 All rights reserved. Reproduction in whole or part without written permission is strictly prohibited. Lawdragon does not authorize outside companies to provide reprint services of its content. For reprints, contact Melissa Chan at melissa@lawdragon.com.

[ KATRINA DEWEY ] PUBLISHER & CEO katrina@lawdragon.com

[ JOHN RYAN ] EDITOR-IN-CHIEF john@lawdragon.com

ELCOME TO THE FIRST EDITION of Lawdragon Insights. Let me take a moment to tell you about the Insights series,

how we selected private funds as our first topic, as well as a bit about our methodology. Having joined Lawdragon from another legal publisher in 2013, I aimed to create a bespoke publication for corporate counsel, featuring the short list of the top lawyers in of-the-moment practices who were deemed a cut above by the world’s leading inhouse counsel. We strived to be consciously elite and detailed – and to provide comprehensive knowledge in our coverage. We have included lawyers from the top through the more junior. It has been, in particular, gratifying to shine an early light on the stars of tomorrow. As for our selection of private funds as the first topic, I should note it’s been an area of particular interest for me since I began covering the private funds space in 2006. Funds today are facing a pivotal moment of maturity, consolidation and increased opportunity after the tribulations of the financial crisis and increased surveillance by regulatory bodies globally. To create Insights: Private Funds, senior correspondent Cat Rodgers and I independently canvassed leading clients in the market and sought referrals to additional in-house funds counsel. This research informed our assessment of the 15 leading funds practices featured in this guide, as well as those included in “The Honorable Mentions,” which regularly act for premier funds. Key criteria included mandates handled in the last three years, with a focus on sponsor-side representation, and the depth and breadth of the practice, including abilities in ancillary areas. We reached out to the firms after the corporate counsel weighed in, seeking more details on individual private firm lawyers and practices. The individual lawyers featured were selected based on a combination of market feedback and their mandates. We consciously decided not to rank the firms or the lawyers, but to focus instead on those in the major leagues, and those who offer outstanding specialists or variations on the private funds practice. This decision was driven by the fact that the number one firm for one fund with a particular strategy and geographical focus may not be number one for another. We leave it to you to decide which is the best for you and hope that the detail offered here brings out the nuances and characteristics of the various teams. For the record, all selections were made without any influence from firms, whether through relationships or monetary support. Lawdragon prides itself on its independence as a media company, and Insights upholds that standard in every way, I’m pleased to say. I’d also like to note how pleased I am to be anchoring the first truly international guide to lawyers. You’ll find within here the best private funds lawyers on three continents – who provide guidance to clients in every continent on Earth. In addition, I’m delighted to be joining a company with a strong digital platform, ensuring corporate counsel have access to meaningful information on elite counsel through the Web. Until the next guide,

[ CATHERINE MCGREGOR ] MANAGING EDITOR

INSIGHTS: PRIVATE FUNDS An Editorial Introduction As I write this, the Financial Times headline describes 2013 as a bumper year for IPOs – the biggest since 2007 – primarily driven by private equity funds seeking exits on their investments. This suggests that we are coming out of the choppy waters of the post-ﬁnancial crisis period and entering a new golden age for private equity. Or does it?

In interviews with Insights, leading corporate counsel

he would not be surprised to see some of the larger funds

described today’s climate for funds as a brave new world –

hosting in-house legal teams on the scale of those of banks.

and one which is fundamentally diﬀerent from pre-Lehman.

In-house legal teams will have to grow, said Actis’ Peter

Today’s private funds and their lawyers work in a climate of

Olds, but he foresees the next few years having these teams

heightened risk awareness. Indeed, some general counsel

“trying to do more with less.” While Olds’ team may grow,

have told me they feel the role of the in-house lawyer is

it could be with temporary hires. And, as with the banks,

now that of “risk arbitrator.”

the expectation of a regular program of secondees will

The day-to-day reality for today’s in-house fund lawyers has transformed from dealmaking to general corporate governance – mainly satisfying the requirements of regula-

become the norm. Corporate counsel also report an ongoing reliance on outside counsel, particularly those who bring sophistica-

tors. One fund professional said, “we are in a regulatory

tion and superior project management skills, as well as a

environment and I don’t see that ever changing.”

good commercial sense of the market. In terms of choos-

For many funds, this is a sea change. “We have had

ing funds lawyers, many funds are very loyal to existing

to change our corporate structure to address this and

outside counsel, but growth coupled with changing market

are always looking at what’s coming next,” said one gen-

realities could force a reconsideration of historic relation-

eral counsel. “It’s had a material eﬀect on who we are as

ships. Many in-house lawyers told us that their outside

a business.”

fund counsel was inevitably much more important than

So what does that mean for in-house advisors, and their

deal counsel because “when you come to the fund side, it’s

outside lawyers? We spent six months reporting on that

your whole life – M&A lawyers may be for only one deal.”

question, talking to dozens of corporate counsel and fund

The importance of outside funds counsel is underscored

professionals, and an even greater number of outside coun-

by our interviews with 14 global leaders, whose interviews

sel. And what we found is a brave, new and much broader

are interspersed between the editorial reviews of the ﬁrms

world where outside counsel are in unprecedented need for

featured in this guide. These lawyers epitomize what corpo-

regulatory compliance, yes, but also for their fund savvy.

rate counsel need: outside counsel who are “so much more

Many funds have or will bolster their in-house teams. One

than just lawyers.” They are counsel who are commercially

GC at a top private fund said that some funds are becoming

savvy and who really understand their clients, their drivers

more like big ﬁnancial institutions. In a few years, he said

and the markets in which they operate.

www.lawdragon.com

lawdragon

lawdragon insights One of the world’s foremost private funds lawyers, Simp-

encompassed asset classes and fund vehicles. A few years

son Thacher & Bartlett’s Tom Bell, explains the genesis

ago, infrastructure funds were struggling – and now they

of the Goliaths of the funds world while analyzing the

are incredibly hot. And while hedge funds were the big

development of the multi-disciplined fund manager. It’s

casualty of post-Lehman market shifts, many multi-asset

interesting to look back on the development of the industry,

class managers are now looking for hedge-type products

back to a time when investors were suspicious of managers

with more liquidity. One fund we spoke with is trying to

with more than one strategy. Another major development has been the shift in the role of investors, according to John Caccia of Skadden, Arps, Slate, Meagher & Flom, who dissects the development of the new style of private fund investor. Many financial institutions have shifted from a strategy of investing in private funds and put more focus on sovereign wealth funds, family offices and ultra-high net worths. Concomitant with that is a less passive stance from many limited partners, with more looking to be direct or co-investors – or even sponsors. Ed Hall of King & Wood, Malleson SJ Berwin discusses how the changing concerns of investors have affected fundraising strategies. And the managers in this new normal? They are facing significant changes in how they structure funds, bringing

Erica Berthou (left), of Debevoise & Plimpton, and Managing Editor Catherine McGregor. Photo by Melissa Chan.

key ramiﬁcations for both sponsors and investors. Outside

take the traditional alternative-asset classes and mold

counsel today bring an understanding of the fund and its

them into a more liquid mutual-fund format.

structure, how the managers of funds have worked histori-

This diversiﬁcation across asset classes has, in the most

cally, and what terms they can capitulate on with investors.

extreme form, led to endowment-style fund structures.

“What you really need is someone who understands what

Davis Polk’s Leor Landa examines how endowment-style

you’re trying to do – and can make it all come together,”

funds diﬀer in structure from a traditional hedge or private

said one general counsel.

equity strategy and also takes a look at the legal headaches

Two lawyers who do just that discuss key structuring issues: Jason Glover of Simpson Thacher served as lead

they can cause. Other topics included here are the uses of separate ac-

lawyer to two major funds in the market just post-Lehman.

counts, which Debevoise & Plimpton’s Jordan Murray sees

He details the genesis of the “early-bird” discount incen-

as being a “foot in the door” strategy with new marquee

tive he developed and its ramiﬁcations for those funds and

investors that a fund might want to attract. At the other

the wider market. Marco Masotti of Paul, Weiss, Rifkind,

end of the fund life cycle, Sean Hill of Proskauer Rose

Wharton & Garrison examines the market pressure spon-

discusses the use of structured secondary transactions,

sors face on management fees amidst more savvy investors.

in particular to support the portfolio of end-of-life funds.

The increasing regulatory landscape requires outside

Emerging markets have fluctuated in temperature.

counsel to have an understanding of the structure of the

O’Melveny & Myers’ Beijing-based Larry Sussman discusses

manager itself in addition to the various funds. In one of

uses of renminbi funds and structures that have proven

our most in-depth pieces, we discuss this regulatory shift

most usable onshore and oﬀ. One of the hottest markets

with Phil Bartram of Travers Smith, who explains the Al-

for private equity these days is Latin America. Debevoise’s

ternative Investment Fund Manager’s Directive (AIFMD).

Erica Berthou shares her myriad experiences raising funds

We also look at the regulatory framework in the U.S. in our discussion with Davis Polk & Wardwell’s Nora Jordan,

in Peru and Colombia as well as pan-regional funds. Whether in Beijing or Bogota, London or New York, pri-

who examined recent Securities and Exchange Commission

vate funds are a critical component of the world’s economy,

rules concerning bad actors and solicitation.

as are the lawyers who structure them and insure their

The shift in private funds strategies since the 1990s has 8 / lawdragon

compliance and health. www.lawdragon.com

PHOTO BY MICHAEL WHARLEY

PETER OLDS • ACTIS

THE NEW NORMAL FOR FUND COUNSEL BY CATHERINE MCGREGOR

www.lawdragon.com

lawdragon

lawdragon insights

The new normal for fund counsel is a brave new world. The landscape of private equity funds has changed quite dramatically since the “Golden Age” of 2002-2007. That’s what David Rubenstein, co-founder and co-CEO of The Carlyle Group termed it. How much has it changed? In this issue of Insights, fund veteran Tom Bell of Simpson Thacher terms the current climate for funds the “triage age.” That is not to say that funds are not raising a lot of money doing deals and reaping dividends for themselves and their investors. It’s more that the environment for doing so has become more difficult to navigate; in many ways it’s a Darwinian moment for the private funds industry. Many smaller and weaker managers have gone to the wall and manager track record has become the mantra for most investors. When I started looking at the funds industry in 2006, many managers still did not have an internal legal function. For many, that now seems hard to fathom as regulation has become a mainstay component of this “brave new world.” Indeed, funds are required to have compliance functions under new legislation in the U.S. and the UK. We were interested in how these changes have impacted both the day-to-day role of corporate counsel at leading fund managers and their use of and relationship with their external counsel. To kick off our Insights into the private funds industry, we spoke with Peter Olds, legal director of Actis, a $5 billion fund investing exclusively in Asia, Africa and Latin America. Actis was founded in 2004 after spinning out from the Commonwealth Development Corporation. Its emerging-markets remit is of keen interest to a range of investors globally, meaning that Peter Olds is dealing day-to-day with a huge raft of regulatory issues. Olds joined Actis in 2009 from Clifford Chance, where he was a senior associate in the private funds group.

PETER OLDS • LEGAL DIRECTOR Actis - London Lawdragon: How has the constituency and function of the internal legal team changed over the past 5 years since increased regulation for fund managers? Peter Olds: Anecdotally and based on my experience at Actis, I would say that teams are more heavily weighted in favor of fundraising and compliance, meaning that relatively speaking there is less hiring for transaction specialists. This can either be as a result of teams growing by adding fundraising or compliance specialists, or as a result of role changes for existing team members. For 10 / lawdragon

example, many funds are using secondees from law ﬁrms to assist during fundraising and with compliance issues or making new in-house legal hires much more focused on fundraising and/or regulatory compliance issues. This also ﬂows through to the role of general counsel. Whereas previously a private equity fund general counsel would most commonly have come from a transactional background, increasingly I am seeing job specs asking for more all-round expertise, particularly in relation to compliance and regulatory matters. LD: Obviously the raft of legislation - some directly aimed at fund managers and some more aimed at business generally - has had a huge impact on the role of the legal teams in funds. Has this sea change made the legal function more pivotal to the business? PO: I think it has made both the internal and external legal functions more pivotal to the business. It has increased the need for: • Lawyers who understand the business from the inside, because one of the most important skills in relation to complying with new legislation is integrating it with your existing compliance programs and business practices in a way which causes minimum disruption to what you do already; and • User-friendly external advice, because the huge amount of new legislation is generally almost impossible for in-house teams to cover without help – both in terms of knowing what is out there and what is coming up in the next few months and years. Even if you do know what you need to comply with, there is the issue of how you comply with it. This latter issue has two aspects: what in substance do I need to do in order to comply with the law and what documents and procedures do I need to have in place in order to be sure that I do these things on time and to the necessary standard, and report on them both internally and to the relevant regulator. This is highly specialized knowledge and in truth only external specialists have all of it, in my experience. LD: Has the increase in legislation made funds more reliant on outside counsel for assistance in interpretation or are teams trying to build up internal expertise? PO: I would say both. Since MiFID (the EU Markets in www.lawdragon.com

Financial Instruments Directive), which now seems like ancient history, we have had AIFMD (the EU Alternative Investment Fund Managers Directive), FATCA (the U.S. Foreign Account Tax Compliance Act), the Dodd-Frank Act, U.S. Commodities Futures Trading Commission Regulation changes, EMIR (European Market Infrastructure Regulation), CRD IV (EU Capital Requirements Directive IV) and the U.S. Securities and Exchange Commission’s increased focus on broker-dealer exemptions. We have been heavily reliant on outside counsel for advice in all of these areas – and although we have always been this reliant on outside counsel for advice on regulatory matters there is now just so much more of it to deal with. Equally, we have had to build up internal expertise. We have done this in two ways. The lawyers who already worked at Actis have had to become instant experts in financial services regulation – both in what the new regulations are and, most importantly, how they interact with our business – and we have hired a full-time compliance manager to deal with the day-to-day mechanics. This is something that is a long way outside the skill set of us lawyers. It requires specific experience and has been an essential hire for us. LD: How do you think the legal team in your organization might change over the next five years to cope with the legislative environment? PO: The big question for us will be how to cope with the increasing regulatory demands without a commensurately increasing budget for lawyers and compliance staff. Before hiring a compliance manager, we had one transaction specialist lawyer, one fundraising specialist lawyer and a general counsel overseeing these and the other legal functions, along with a trainee on secondment from one of our relationship firms. We have since taken on a compliance manager and a part-time lawyer to help with fundraising. I have seen similar hiring patterns at several of our peers over the last few years: a lot of firms have created or added to a specialist compliance function and several have temporarily beefed up their in-house team during fundraisings, either with fi xed contract hires or with secondees (although with the length of fundraisings these days, “temporarily” can mean for years). I think for us it will be a case of continuing to try to do more with less. This will probably mean bringing people in on a short-term basis to cope with periods of high pressure. The type of specialists we will need may well change over time depending on whether we are fundraising,

“

implementing a new compliance program or something else. So we will need to stay flexible in order to use our budget as wisely as possible. LD: Has the move to a more regulatory culture changed your relationship with outside counsel? PO: Most importantly, it has forced us to look outside our regular “panel” of outside counsel for the best regulatory advice we can get. Rather than looking on regulatory advice as an add-on to the advice we receive from our usual relationship law firms, we now look on it as a business area in its own right and so we have sought separate representation for our non-U.S. regulatory matters, including amongst other things AIFMD, CRD IV and EMIR. We are particularly reliant on U.S. counsel when it comes to fundraising, because of the number of filings that we need to make and certifications we need to give every time we hold a closing. In truth - and I am slightly embarrassed to admit this - despite having worked in funds for nearly 12 years, I no longer know what all the pieces of paper we are signing for the U.S. achieve. I am generally aware that most of them concern either lobbying restrictions, maintaining our private placement exemptions or getting a clean securities opinion from our U.S. lawyers, but I couldn’t always tell you which of them a particular document achieves. This is simply a function

Rather than looking on regulatory advice as an add-on to the advice we receive from our usual relationship law ﬁrms, we now look on it as a business area in its own right. — PETER OLDS

www.lawdragon.com

”

of not having the time available to focus on every part of the fundraising, and where this is the case, I am totally reliant on outside counsel. As we have been raising funds over the last couple of years, I have been breaking down each of our bills to see how much of the bill is made up of our fundraising. Our legal bills are made up of regulatory and legal opinion work that can never be done in-house. A surprisingly high percentage of the total bill, perhaps 20 percent, is work of this kind. All of those $2,000 ERISA bills and $5,000 legal opinions really add up! This is now a substantial transaction cost of raising a fund, which has grown out of all proportion in the last few years with no corresponding increase in commercial beneﬁt to either general partners or investors.

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LD: How does this increase in legal and compliance, which is an additional burden of cost, segue with the fund’s duty to create value for its investors? PO: There is a certain amount of work that needs to be done, both on behalf of our funds and on our own account, and contrary to most non-lawyers’ expectations, a high proportion of it is non-discretionary. You cannot decide not to comply with AIFMD because it’s too expensive, you cannot go without legal representation on deals, and likewise for fundraising. All of it can be allocated either to an in-house lawyer or to external counsel but again the decision is made for you in many cases. You cannot go without an external law ﬁrm on deals because the risk to the fund is too much, you cannot go without an external law ﬁrm on fundraisings because the risk is again too high and because the workload is too much for the in-house team. For everything else however, there is a choice between in-house lawyers and external counsel. For work on our

12 / lawdragon

own account (which we pay for), the decision-making process is simple: if we have the time and the skills to do it ourselves, and we don’t need the safety net of an external adviser’s professional indemnity policy, we do it ourselves. However for work on behalf of our funds, which the funds pay for, we are not incentivized to find the most cost-effective provider because if we do it ourselves we pay for it in the sense that we are not paid or reimbursed for the work. But if we use an external firm, the fund pays for it. We are therefore incentivized to use the in-house team for our “internal” work and external lawyers for fund work, which is not necessarily the best outcome for our investors. In general I think the industry is not all that sophisticated in the way it thinks about using lawyers and that investors could get more for their money if they were willing to move away from the standard model of who pays for what, i.e., the general partner pays the salaries of the inhouse lawyers and nothing they do can be charged back to the fund but the fund pays the costs of external lawyers.

www.lawdragon.com

PHOTO BY JOAKO13/FREEIMAGES.COM

lawdragon insights

CLEARY GOTTLIEB STEEN & HAMILTON Tight-knit New York-based practice punching above its weight with marquee clients such as TPG and KKR Summary of ﬁrm structure:

Ancillary practice support in key locations:

Cleary is an international law firm with headquarters in New York. The firm is a lock-step partnership with 16 offices across North and South America, Europe and Asia. It employs over 1,200 lawyers worldwide, with its largest office located in New York. Cleary’s international practice is well established, dating back to the early days of the firm’s history.

Tax: New York – 2 partners (Jason Factor, Bill McRae), 1 counsel (Meyer Fedida)

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: New York: 3 partners (Michael Gerstenzang, Elizabeth Lenas, Robert Raymond), 1 senior attorney (David Yudin) Hong Kong: 1 senior attorney (Shubing Yuan) Levels of associates: New York: 25 associates Asia: 4 associates London: 2 associates Diversity statistics: GENDER Partners

1 out of 3 are women = 33%

Senior Attorney

1 out of 2 are women = 50%

TOTAL

2 out of 5 are women = 40%

ERISA: New York – 1 partner (Michael Albano), 1 counsel (Caroline Hayday) Key relationship clients: Blackstone Alternative Asset Management, JP Morgan, KKR, MBK Partners, The Raine Group, TPG, Victoria Capital Partners Recent publishable mandates: 2014: Counsel to TPG in the formation of a special situations fund, TPG Opportunities Partners III 2013: Counsel to The Raine Group in connection with the formation of Raine Partners II. Counsel to KKR in the formation of KKR Asian Fund II, a fund formed to make private equity investments throughout Asia. Counsel to MBK Partners in the formation of MBK Partners Fund III, one of the largest Asia-based Private Equity funds 2012: Represented TPG in the formation of TPG Asia VI, which focuses on private equity investments in the Asia-Paciﬁc region. Advised KKR in the formation of KKR China Growth Fund 2011: Represented Victoria Capital Partners in the formation of Victoria South American Partners II, a fund formed to make private equity investments throughout Latin America Turnover rate – notable departures and hires:

MINORITY Partners

0 out of 3 = 0%

None found

Senior Attorney

1 out of 2 = 50%

Asset classes worked on:

TOTAL

1 out of 5 = 20%

Buyout, distressed debt/special situations, fund of funds, Venture/growth capital, hedge funds

lawdragon insights leary’s fund formation group is based in

• KKR in forming private equity KKR China Growth Fund

New York, but its reach is global, thanks

• The Raine Group in forming a private equity fund

to the ﬁrm’s commitment to a comprehensive international strategy. A principal client of the team is private equity su-

perstar TPG – which is a testament to the strength of the group’s offering on the fund sponsor side. Other names on its sterling client roster include The Raine Group, KKR, Blackstone Alternative Asset Management, Angelo Gordon, MBK Partners and JP Morgan. High-end funds with sophisticated structures are Cleary’s principal focus, and to this end the team has recently advised KKR in the formation of KKR Asian Fund II, TPG in forming TPG Asia VI and MBK Partners in the formation of MBK Partners Fund III – three highlights which also showcase the team’s interest in emerging markets. The group’s expertise spans a range of strategies, including buyout, credit, venture, real estate, growth capital, hedge funds and funds-of-funds. Outside of the fund formation zone, the group works with Cleary’s substantial private equity transactional team to advise fund managers and sponsors on strategic initiatives, spin-outs, mergers and consolidations, public and private offerings, permanent capital vehicles, joint ventures and more. [ MICHAEL GERSTENZANG ] PARTNER – NEW YORK “Skilled fund specialist who really knows the market.” Michael Gerstenzang chairs the International Bar Association’s Subcommittee on Private Investment Funds. He spent two years in Cleary’s Brussels office in the mid-1990s and is now based in New York, advising buyout, venture capital, international, hedge, special situations funds and other alternative asset vehicles in fund formation. He can often be found acting on behalf of key client TPG, and other clients include KKR, The Raine Group, Blackstone and Victoria

[ ELIZABETH LENAS ] PARTNER – NEW YORK Up-and-coming funds partner Elizabeth Lenas, who made partner in 2013, acts in private fund formation, as well as counseling on spin-oﬀs, joint ventures, co-investments, managed accounts and shareholding arrangements, among other matters. She has advised a wealth of fund managers, including TPG, The Raine Group, KKR, Hillhouse and Unitas Capital. MANDATES • TPG in the formation of private equity fund TPG Asia VI • TPG in the formation of TPG Growth II, targeting small-and middle-market growth equity and buyout investments • TPG in the formation of TPG Opportunities Partners III, focused on special situations and distressed credit investments • KKR in the formation of the KKR China Growth Fund, a private equity vehicle [ ROBERT RAYMOND ] PARTNER – NEW YORK Funds and ERISA expertise Robert Raymond represents alternative investment funds in formation, as well as in governance and investment activities. The latter areas include spin-oﬀs, shareholder arrangements, co-investment and carried interest schemes, and arrangements with founders, executive compensation and corporate governance. His clients include the likes of Credit Suisse, Deutsche Bank, MBK Partners, Angelo Gordon and JP Morgan. MANDATES

Capital Partners. His involvement also includes acting for

• KKR in forming private equity fund KKR Asian Fund II

funds in connection with their investment activities, and

• JP Morgan in forming conduit funds to invest in L Capi-

advising sponsors and investment teams regarding seed

tal Asia, LLC., Blackstone Real Estate Partners VII LP,

investments, spin-outs, joint ventures, and other matters.

Colony Single Family Residential, Silver Lake Partners

MANDATES • TPG in the formation of TPG Opportunities Partners III, focused on special situations and distressed credit

Fund IV, LP, Apax VIII, LP and CCMP Investors III, LP • MBK Partners in forming Asia focused private equity fund MBK Partners Fund III

investments • KKR in forming private equity fund KKR Asian Fund II 14 / lawdragon

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CLIFFORD CHANCE

Continues to be a strong practice with deep roots in the global market Summary of firm structure: Clifford Chance has with 36 offices in 26 countries and some 3,400 legal advisers. The partnership was formed by the merger of Clifford Turner and Coward Chance in 1987, is headquartered in London and is a member of the Magic Circle of leading British law firms. It is one of the ten largest law firms in the world measured by both number of lawyers and revenue.

Paris – 2 partners (Eric Davoudet, Alexandre Lagarrigue)

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation:

Germany – 1 partner (Marc Benzler)

Amsterdam: 2 partners (Quirine Eenhorst, Ate Veenstra) New York: 3 partners (Cliff Cone, Roger Singer, Craig Medwick) London: 2 partners (Nigel Hatfield, Gerard Saviola) Luxembourg: 1 partner (Joelle Hauser), 1 office managing partner (Christian Kremer) Hong Kong: 2 partners (Mark Shipman (global head of funds & investment management sector), Matthias Feldmann) Frankfurt: 1 partner (Sven Zeller) Beijing: 1 partner (Ying White) Madrid: 1 partners (Javier Amantegui) Singapore: 1 partner (Kai-Niklas Schneider) Paris: 1 partner (Xavier Comaills) Sydney: 1 partner (Lance Sacks) Levels of associates: Information not provided by the firm Diversity statistics: Information not provided by the firm Ancillary practice support in key locations: Tax: London – 2 partners (Anthony Stewart, Alistair Woodland (employment)) New York – 2 tax partners (David Moldenhauer, Richard Catalano); 1 ERISA partner (Howard Adler) Germany – 3 partners (Josef Brinkhaus, Marco Simonis, Jan Grabbe)

Amsterdam – 1 partner (Ate Veenstra) Regulatory: London – 3 partners (Simon Crown, Simon Gleeson, Monica Sah) New York – 3 partners (Jeff Berman, Nick O’Neill, Steven Gatti) Amsterdam – 1 partner (Frank Graaf) Hong Kong – 1 partner (Mark Shipman) Key relationship clients BC Partners, Blackrock, Deutsche Asset & Wealth Management, Equistone, Hopu Investment Management, Infracapital, Permira, Tata Capital Recent publishable mandates: Ongoing: Clifford Chance is co-counsel (together with Fried, Frank, Harris, Shriver & Jacobson LLP) in relation to the Permira V fund Ongoing: The firm’s regulatory team is advising on and/or assisting with restructuring, reorganisation, amending fund documentation and/or license application in relation to AIFMD implementation for numerous asset manager clients across the globe, including clients based across Europe, in the US and in Asia 2013: Acted for HOPU Investment Management on the fund establishment and regulatory aspects of a China focused private equity fund 2013: Advised International Finance Corporation (IFC) on its target $1 billion Russian Bank Opportunity Fund Turnover rate – notable departures and hires: 2013: Kai Schneider joined the firm to lead the Singapore Funds and Investment Management practice 2013: Xavier Comaills joined the firm to lead the Private Funds Group in Paris 2012: Ying White joined the firm to lead the Private Funds Group in China Asset classes worked on Buyout, fund of funds, infrastructure, mezzanine, real estate, secondaries, debt, venture/growth capital

lawdragon insights liﬀord Chance has long been a preemi-

ing conﬁdentiality of what other funds are doing. Clients

nent private funds practice, and remains

like the security of knowing that a solution has been tried

so, despite well-publicized partner and

and tested in the market.

senior associate exits in recent years. Per-

Hatﬁeld is particularly deft in private real estate funds

haps the most notable of these was the

and is seen as a go-to name for these in Europe. However,

departure of Jason Glover to Simpson Thacher in 2010,

to characterize him solely in this ﬁeld would be mislead-

followed in 2011 by the loss of Ed Gander, Nick Benson,

ing. “He’s a pretty omnipresent utility fund lawyer, who

Nigel Clark and tax lawyer Jonathan Kandel to Weil Got-

can do pretty much everything,” said one counsel, adding

shal & Manges. Neverthless, the magic circle leviathan has

that whatever it is, “he will get you there.”

held on to an impressive range of sophisticated mandates for the likes of Permira, Credit Suisse AG and BlackRock Private Equity Partners AG. The firm is famed for its global reach, with 50 partners worldwide in the investment management group, located in New York, London, Hong Kong, Beijing, Singapore, Sydney, Paris, Frankfurt, Amsterdam, Luxembourg and Madrid. And this year the team has beefed up its offering with the arrival of Kai Schneider in Singapore, and Xavier Comaills and team in Paris. The team’s global offering is, and has been, a significant draw for sponsors, particularly its feet in both the United Kingdom and the United States. Pivotal to the continuity of the practice is keystone Nigel Hatfield, who heads up the funds practice in London, ably supported by Gerald Saviola, a significant hire in 2011. The group is felt to have a solid, supported bench of practitioners who are able to lend clients wisdom grounded in deep market experience, as well as notable strength across

MANDATES: • Tata Capital on its $1 billion Tata Opportunities Fund • Infracapital, on all aspects of the fundraising of Infracapital Partners II, its second infrastructure fund with a target of $1.5 billion • RREEF on establishing and raising closed-ended real estate fund, RREEF Real Estate Partners III • Equistone Partners Europe Limited (formerly Barclays Private Equity Limited on fundraising for Equistone IV which reached $2.5 billion at final close [ GERARD SAVIOLA ] PARTNER – LONDON “Strong, forceful and good at distilling stuff down to the material point.” Gerard Saviola joined Nigel Hatfield in Clifford Chance’s London office in 2011, stepping up to partnership, from his previous role as

a range of asset classes, particularly in real estate funds.

international counsel at Debevoise. He came with a good

[ NIGEL HATFIELD ] PARTNER – LONDON

pedigree, and fund managers continue to report well on

“Calm, considered problem solver who glues it all together.”

his progress at the ﬁrm, noting his dynamism and reputation among leading market players. MANDATES:

Generally everyone we spoke to in the

• Permira, (Cliﬀord Chance as co-counsel) in connection

market had something good to say about

with Permira V, its ﬁfth European private equity

“consummate gentleman” Nigel Hatﬁeld. He is commended

buyouts fund, and on its related industry adviser co-

universally for his deep market knowledge, but corporate

investment scheme for senior industrialists (Cliﬀord

counsel also take the view that central to his success is his

Chance as lead counsel)

ability to bring his detailed understanding to penetrate the

• DRC Capital on establishing of its ﬁrst post-spinout

issue and solve problems. One fund counsel commented:

fund, European Real Estate Debt Fund II (ERED

“Nigel is very calm, so he gives the impression he’s seen

II) and regarding related carried interest and co-

the problem before and he’s just applying the things that he’s seen to it.” Having such reserves of experience to draw on means

investment aspects • Generation Investment Management on the Generation IM Climate Solutions Fund II

that when clients look to Nigel for counsel, they frequently ﬁnd he is able to provide a clear view on what is market and what is not, where the risks are, and without breach-

16 / lawdragon

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[ ANTHONY STEWART ] PARTNER – LONDON User-friendly tax lawyer Anthony Stewart is a London tax partner, whose knowledge of funds and structured investment products has made him a mainstay on a profusion of the practice’s key mandates. Clients are confident that he knows where the market is going, as would befit a practice which ranges across private equity, real estate, hedge, UK-authorized funds and investment trusts. He also advises on co-investment and carried interest arrangements, and transaction structuring too. MANDATES: • Apax in connection with tax and regulatory advice, as well as drafting internal documentation and negotiating banking documentation concerning Apax 8. • BlackRock Private Equity Partners AG (formerly Swiss Re Private Equity Partners AG) in establishing BlackRock Private Equity Partners VI, a fund of funds • DRC Capital on establishing of its first post-spinout fund, European Real Estate Debt Fund II (ERED II) and regarding related carried interest and coinvestment aspects [ ALEXANDRA DAVIDSON ] LONDON – ASSOCIATE “She’s already got a wide range of experience, and got has real character, which just makes it more human.” London senior associate Alexandra Davidson takes her lead from Hatfield, sharing his habit of providing well-informed advice. Clients we spoke to singled her out as someone “who won’t give you an answer unless it’s solidly backed up,” and she also wins praise for being clear about when she needs to defer a point: “Alex always lets you know when she’s going to go to someone else for advice. She’s not one of these lawyers who just wings it.” [ REBECCA HILL ] ASSOCIATE – LONDON Rebecca Hill is making a name as an up-and-comer on the tax side of private funds work.

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[ YING WHITE ] BEIJING – PARTNER Ying White heads Clifford Chance’s China funds and investment management group from her base in Beijing. Fluent in Mandarin and English, she is firmly plugged into the market, demonstrated by her work advising the Beijing Private Equity Association, and also in leading the drafting committee of the China Association of Private Equity in developing the country’s private equity and venture capital best practice and self-regulatory principles. Day to day she is experienced in onshore and offshore fund formation for a client base of private equity, hedge, RMB funds and Chinese institutions. MANDATES: • HOPU Investment Management (a PRC private equity firm), on establishing HOPE Fund II • Man Group in connection with the Man QDLP fund • MAN Investments (Hong Kong) Limited in connection with regulatory advice on the QDLP project and establishing the onshore fund and fund manager [ MARK SHIPMAN ] PARTNER – HONG KONG Mark Shipman heads up Clifford Chance’s Investment Management practice from its Hong Kong office. A funds stalwart, he has a broad range of experience across the asset management field generally and across all types of investment funds, including alternative assets. His expertise in the financial field led to his recent appointment as a member of the Hong Kong Government’s Financial Services Development Council and to the Advisory Committee of the Securities and Futures Commission in Hong Kong. Shipman acts for a number of marquee names globally and in the Asia Pacific region including HSBC, Man Group and AMP Capital Investors. MANDATES • Phoenix Property Investors on the establishment of a parallel fund platform for investments in real estate in the Asia Pacific region • Asia Research Capital Management on the establishment of their Fund II

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lawdragon insights [ MATTHIAS FELDMANN ] PARTNER – HONG KONG From his base in Hong Kong, Matthias

MANDATES: • Bridgepoint, BC Partners, InfraRed, Bouwfonds, CVC, Gramercy, Permira, Star Asia, Tata and other US,

Feldmann is active in forming private

EU and Asian fund managers, in meeting the March

equity, real estate and hedge funds as well

31 Form ADV ﬁling deadline under the Investment

as ETFs. He also assists banks and fund managers in connection with regulatory and licensing matters, with regard to fund joint ventures, fund acquisitions, seed capital investments and foreign direct investments. MANDATES: • HOPU Investment Management (a PRC private equity firm), on establishing HOPE Fund II • Hosen Capital in establishing New Hope Agriculture and Food Fund II, LP [ TERESA LEUNG ] CONSULTANT – HONG KONG Teresa Leung is a familiar face in the market, appearing with partner Matthias Feldmann on a host of significant mandates. MANDATES: • HOPU Investment Management (a PRC private equity firm), on establishing HOPE Fund II • Hosen Capital in establishing New Hope Agriculture and Food Fund II, LP [ JEFF BERMAN ] PARTNER – NEW YORK New York-based regulatory specialist and funds lawyer

Advisers Act • Gávea Investimentos in connection with its Brazilian and oﬀ-shore private equity fund [ ROGER SINGER ] PARTNER – NEW YORK Roger Singer is often seen on private fund formation work with a cross-border component, and has acted for private equity, real estate, infrastructure debt and natural resources sponsors, in addition to funds-of-funds and investors. MANDATES: • Portfolio Advisors on the formation of Pan Asia Buy Out Fund IV • Kandeo on its fundraising for a Spanish-speaking Latin American private equity fund • RREEF on establishing and raising closed-ended real estate fund, RREEF Real Estate Partners III [ CLIFF CONE ] PARTNER – NEW YORK An addition to the partner ranks in May 2013, Cliﬀ Cone is well-versed in the US Investment Company Act of 1940 and the Investment Advisers Act of 1940. He is active in establishing and advising

Jeﬀ Berman provides advice in private

closed-end and open-end funds, as well as ETFs. He also

funds, M&A and ﬁ nancial regulation,

assists in connection with registration, compliance and

often where alternative assets strategies, products and

disclosure issues.

markets intersect. In this sphere, clients have found him to be “a great example of someone who’s a much more helpful person to talk to if you have a regulatory query: he’s not just someone who regurgitates the law and lets you panic about it.” He has acted for sponsors in forming private equity, real estate and hedge funds, as well as advising on M&A and securities oﬀerings.

18 / lawdragon

MANDATES: • Bridgepoint, BC Partners, InfraRed, Bouwfonds, CVC, Gramercy, Permira, Star Asia, Tata and other US, EU and Asian fund managers, in meeting the March 31 Form ADV ﬁling deadline under the Investment Advisers Act

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DAVIS POLK & WARDWELL

A broad-based investment management group with an impressive bank of regulatory knowledge Summary of firm structure: Davis Polk is a global law firm with 10 offices across the world’s key financial centers. Davis Polk (including its associated entities) has more than 800 lawyers in offices in New York, Menlo Park, CA, Washington DC, São Paulo, London, Paris, Madrid, Hong Kong, Beijing and Tokyo. Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation New York: 5 partners (John Crowley, Nora Jordan, Leor Landa, Yukako Kawata, Gregory Rowland), 4 counsels (Susan Betteridge Baker, Jennifer Grant Cooper, Catherine Martin, Susan Reibstein), 14 associates Hong Kong: 1 partner (Kirtee Kapoor) Levels of associates Information not provided by firm Diversity statistics GENDER Partners

2 out of 6 are women = 33%

Senior Attorney

4 out of 4 are women = 100%

TOTAL

6 out of 10 are women = 60%

MINORITY Partners

2 out of 6 = 33%

Counsel

0 out of 4 = 0%

TOTAL

2 out of 10 = 20%

PHOTO BY KRISZTIAN MIKLOSY/DREAMSTIME.COM

Ancillary practice support in key locations: Executive Compensation & ERISA: New York – 4 partners (Jeffrey Crandall, Edmond FitzGerald, Kyoko Takahashi Lin, Jean McLoughlin), 5 counsel (Ron Aizen, Ann Becchina, Andrew Blau, Ada Dekhtyar Karczmer, John Wright), 9 associates Washington, D.C. – 1 counsel (Erin Cho) Tax: New York – 5 partners (Harry Ballan, Mary Conway, Samuel Dimon, Lucy Farr, Michael Mollerus), 2 counsel (Gregory Hannibal, Craig Phillips), 23 associates Menlo Park – 1 partner (Rachel Kleinberg), 1 associate

London – 1 partner (Jonathan Cooklin), 1 counsel (David Wilson), 4 associates Regulatory: New York – 4 partners (Luigi DeGhenghi, Randall Guynn, Lanny Schwartz, Margaret Tahyar), 4 counsel (Gerard Citera, John Douglas, Lena Kiely, Reena Agrawal Sahni), 21 associates Washington, D.C. – 3 partners (Susan Ervin, Annette Nazareth, John Reynolds) 1 counsel (Jeanine McGuinness), 5 associates London – 1 counsel (Richard Small) Key relationship clients: Avenue Capital, Credit Suisse, Crestview Partners, GP Investments, J.P. Morgan, Morgan Stanley, Perella Weinberg, PIMCO, Tailwind Capital Recent publishable mandates: Ongoing: Advising SIFMA regarding the application of the Volcker Rule on banking entities and their investments in and sponsorship of private equity funds Ongoing: Advising Avenue Capital, Capital International, Credit Suisse, Crestview Partners, Deutsche Bank Asset Management, Metalmark Capital, Morgan Stanley, Oaktree Capital Management, RoundTable Healthcare Partners and Tailwind Capital Partners in connection with regulatory developments under the Dodd-Frank Wall Street Reform and Consumer Protection Act Ongoing: Advising Perella Weinberg on a variety of multi-asset class products that combine private equity, hedge fund and real estate fund investments Ongoing: Advising Crestview Partners, DLJ Merchant Banking, Greenhill & Co., Metalmark Capital, RoundTable Healthcare Partners, Tailwind Capital, Oaktree Capital Management on a variety of matters related to their private equity funds and portfolio holdings Turnover rate – notable departures and hires: 2014: Counsel Aaron Schlaphoff left to become an Attorney Fellow at the SEC 2012: Partner Danforth Townley left to become an Attorney Fellow at the SEC Asset classes worked on: Buyout, distressed debt, fund of funds, mezzanine, real estate, venture/growth capital, hedge funds

lawdragon insights avis Polk’s private funds practice is a key component of its wider investment management function, spanning registered and hedge funds as well as private equity funds. In a market that is beginning to

see increased cross-pollination between these areas, the

group’s client base beneﬁts from a solid bank of knowledge

across the board. The team’s sweet spot, however, lies in its regulatory expertise, and it is notable for bringing its experience dealing with the SEC to bear on regulatory and compliance advice to private funds clients, including on issues such as Dodd-Frank and the Volker Rule. The group acts for both fund managers and investors, and fund counsel have been particularly impressed by the mettle shown by Davis Polk lawyers in negotiations, with one commenting,“They really knew what they were doing.” The group has concentrated its forces in New York, and has yet to make the leap into Europe or Asia like some of its counterparts, but is nonetheless viewed as a smart,

[ NORA JORDAN ] PARTNER – NEW YORK “Very strong on the mutual funds side of the world.” Nora Jordan heads the investment management group. She has broad-based funds expertise that ranges across hedge funds, mutual funds, closed-ended funds and private equity funds, often offering advice on compliance and regulatory matters affecting private funds, advisers and mutual funds. Counsel really value this background, as one said: “She’s been doing this a long time, and when you talk to her you feel like she’s got that experience level and has seen that depth and breadth of stuff from a different focus area. So I really like talking to her and hearing from the breadth of her experience.” Her client base includes funds, advisers, independent directors, companies, banks, insurance companies and other financial institutions. MANDATES

collegiate team in the private funds space.

• J.P. Morgan, Bridgewater, Crestview and many others

[ YUKAKO KAWATA ] PARTNER – NEW YORK

• Crestview Partners on its $246 million acquisition

A go-to lawyer for regulatory guidance Yukako Kawata heads the firm’s private equity team and is known for her work in advising funds and sponsors on the regulatory and compliance aspects of their operations. She is also experienced in private fund formation and operation, covering private equity, hedge, venture capital funds and fund-of-funds. Additionally, she acts for fund managers in establishing and operating firms, and sponsors in carried interest schemes and other employee profit-sharing arrangements. She can also count institutional investors

with respect to compliance and other matters of Victory Capital Management Inc. [ LEOR LANDA ] PARTNER – NEW YORK Expertise in hybrid structures Leor Landa’s private funds practice traverses private equity and hedge funds, and he is well regarded for his work on secondary funds, as well as funds-of-funds, hybrid and real estate funds. Regulatory and compliance, private equity, structured equity and public transactions and acquisitions of investment advisers also fall within his remit, and his client base also includes institutional investors. Credit

among her clients.

Suisse has been a key client of his.

MANDATES

• Advising a number of leading private fund managers with regard to regulatory developments under the Dodd-Frank act • Crestview Partners, DLJ Merchant Banking, Greenhill & Co., Metalmark Capital, RoundTable Healthcare Partners, Tailwind Capital and Oaktree Capital Management in connection with a variety of matters concerning their private equity funds and portfolio holdings 20 / lawdragon

PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

[ INSIGHTS ]

NORA JORDAN DAVIS POLK (NEW YORK)

BY CATHERINE MCGREGOR

Nora Jordan heads Davis Polk’s 50-lawyer investment management group, which counsels some of the world’s most prominent collective investment vehicles. The firm’s lawyers provide high-end asset management advice covering registered funds, hedge funds and private equity. She spent some time with Lawdragon discussing the so-called bad-actor rule, which requires disqualification of certain issuers or participants in an offering under Rule 506 of Regulation D under the Securities Act of 1933 and the JOBS Act, which allows issuers to engage in general solicitation when doing offerings. JANUARY 2014 Lawdragon: Let’s start by discussing the bad-actor rule. Where does the Securities and Exchange Commission see the burden of proof being with the bad-actor declaration? How diligent does a manager have to be in terms of their personnel and their pasts? Nora Jordan: I think a manager has to be very diligent on this issue. Dodd-Frank dictated that the SEC create a rule requiring disclosure of bad acts by issuers and noncompliance with the rule could mean the issuer has an illegal offering. A manager has to do due diligence and the rule makes that clear by saying that an issuer is protected if it exercises reasonable care and makes a factual inquiry into whether bad acts were committed. Consequently a manager can’t just say, “Oh, I am not aware that we have any bad actors.” The manager has to undertake a factual inquiry – the nature and scope of which will depend on the facts and circumstances. Almost all issuers are now using questionnaires that have specific questions related to bad acts; the questionnaires must be filled out by the parties covered by the rule. One of the open points that practitioners are considering is how often that questionnaire must be filled out. www.lawdragon.com

LD: Is there a standard emerging on that? NJ: With respect to employees, what most people seem to be doing is putting the burden on the employee: the certificate is done once a year but it contains a requirement that the employee promptly disclose any new bad act that occurs during the year. With respect to third parties, people are obtaining a certificate at the inception of the relationship. As with the employee certificate, the third-party certificate contains an obligation to provide prompt notification of any new bad acts. In addition, people generally feel that an issuer should obtain recertification on some periodic basis. Because funds are in continuous offering, a fund could, for example, have a placement agent that the fund has been using for five years and most people believe that is too long a period to go without recertification. I would again recommend recertification once a year. LD: Has the SEC actually defined what reasonable care is in this context? NJ: Not really. That is a question that a lot of people are discussing. Should the issuer, for example, check the regulatory filings of a party in addition to obtaining the certification? For example, should a broker’s Form U-4 be checked? Should Google searches be done? The SEC has very deliberately said “That is up to you.” LD: So that’s an interesting one, isn’t it, because my reasonable care might be different from your reasonable care, and until it actually comes to something hitting the fan as it were and a clear definition coming out it’s still a bit grey. NJ: Right. Particularly in the first couple weeks there was a lot of discussion back and forth as to whether certificates were even needed – with of course some issuers saying it was essential and others saying it was not. Lawyers have been very much a part of that discussion and have debated what is reasonable. A lot of lawyers represent both sides – the broker-dealers and the funds – so those lawyers (including me) really want to come to a place that makes the most sense and is defensible if the SEC ever challenges it. LD: Is there a general place that the industry has come to? lawdragon

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PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

NJ: Generally people believe that issuers do need to do certiﬁcations and they do need to get them updated.

LD: Are there particular sectors of the investment industry that are more aﬀected by this than others?

Because the rule is so new it’s unclear how often the up-

NJ: Yes. The private fund industry is more aﬀected

dates are going to be required, but I would say generally

than others. Corporate issuers who do private placements

everyone agrees that it should be done at least annually.

generally sell to a small number of institutional investors

LD: How likely do you think it is that this process is

who are investing large sums of money. These corporate

going to slow down fundraising activities for some manag-

issuers do not feel the need to rely on the safe harbor of

ers – has it had any impact?

Regulation D because of the availability of other safe

NJ: I don’t think it has slowed down fundraising. There was a lot of scrambling to draft new certificates, amend documents, and create officers’ and directors’ questionnaires, but our clients were all able to get that done on a timely basis and it didn’t slow down any fundraising that I am aware of. It has however been a pain and has added a lot of legal and other costs. In addition, there were tons of open questions on how to interpret the rule. The Securities Industry and Financial Markets Association (SIFMA) submitted a list of about 30 questions to the SEC and I understand that the SEC received over 300 questions within the first couple weeks of the rule becoming final. There was a lot of cost and time spent analyzing issues, but again I don’t think it actually slowed down fundraising. LD: Do you think that was because there has just been so much regulation that people were in a better position than they might have been 5 years ago? NJ: When people saw the SEC’s proposal, they started thinking about ways to comply, but most people are procrastinators and a lot of people waited until the last minute. Luckily most of the things that needed to be done could be done relatively quickly. There was initially a question that threw people for a loop where the rule said you had to disclose the bad acts

“L AW YERS HAVE BEEN VERY MUCH A PART OF THAT DISCUSSION AND HAVE DEBATED WHAT IS RE ASONABLE. A LOT OF L AW YERS REPRESENT BOTH SIDES – THE BROKER-DE ALERS AND THE FUNDS – SO THOSE L AW YERS (INCLUDING ME) RE ALLY WANT TO COME TO A PL ACE THAT MAKES THE MOST SENSE AND IS DEFENSIBLE IF THE SEC EVER CHALLENGES IT.”

of the issuer and its aﬃliated issuers, and aﬃliate was not

— N O R A J O R DA N

PHOTO BY LAURA BARISONZI

defined. Some worried that a large financial institution with thousands of affi liates (when portfolio companies

harbors such as Rule 144A and, more generally, because

were included) would have to do a factual inquiry on,

they are not worried that anyone will challenge their

and obtain thousands of certiﬁcations from, all of these

private placement.

aﬃliates. Understandably, issuers were anxious to get an

Funds, on the other hand, often sell to a large number of

interpretation of what aﬃ liate meant in this context. We

investors and many of them are individuals, which makes

talked to the SEC about it and it took the SEC a couple

issuers worry about whether their private placements

of months to respond. Ultimately, however, they came

will be respected. Funds, and in particular smaller funds

out with an interpretation that was very reasonable and

and funds that are more retail, therefore frequently rely

appropriate and did not encompass far-flung affiliates.

on Regulation D. As between private equity funds and

Sensibly, affiliate in this context only covers affiliates

hedge funds, private equity funds generally have more

that are issuing securities as part of the same private

institutional investors than hedge funds and thus use

offering.

Regulation D less frequently and are less aﬀected by the

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lawdragon insights new rule than hedge funds. LD: How much do you think fund managers are going to take advantage of the JOBS Act amendments that allow general solicitations and that came out around the same

PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

fering and re-certify all investors who invested since the oﬀering commenced? LD: Has there been any clarity on what they deﬁne as an accredited investor?

time as the bad actor disclosure requirement? Because

NJ: The test is clear and in general requires $200,000

traditionally, certainly in private equity, it’s been very

of net income or a million-dollars of net worth. But how

much institutional investors, but as that becomes more

does an issuer check that? It used to be that the investor

challenging to raise capital, funds might be looking out-

ﬁlled out a subscription booklet and would have to check

side that base.

oﬀ a box that said he made $200,000 a year or had a net

NJ: Most of our clients have no intention of doing advertising in newspapers or television because they believe

worth of more than $1 million. And that was it. And so now the question is, does the issuer need to

it would be a waste of money. An advertisement on televi-

get the investor’s tax return? Does the issuer need to get

sion likely would attract many retail investors who would

the investor’s lawyer or broker or accountant to certify

not meet the fund’s eligibility requirements. But some

the net income or net worth of the investor? People do

clients would like to use the rule for what I would call

not like turning over their tax returns and accountants

general solicitation “slip-ups.” What happens for example

and lawyers do not like certifying things. Consequently,

is that the portfolio manager of a hedge fund will go on

many of our clients are trying to get to a place where they

television and talk about his view of the market. During

can determine that at least their existing clients have the

the interview he mentions something that could be inter-

requisite income or net worth based on deposits at the

preted as a plug for his fund, and the interview therefore

bank or broker-dealer or the size of existing investments

could be considered a general solicitation. We also worry

in funds. But if you’re a new client, this would be diﬃcult.

about newspaper reports and websites where something

LD: Obviously these two rules we mentioned that are

could be construed as an oﬀering of a fund although not

tied together are actually quite conﬂicting impulses. Any

intended that way. It would be nice not to have to worry

thoughts as somebody who deals with a range of diﬀer-

about those situations going forward and many people

ent asset classes, and managers and investors, how the

may use the rule for that purpose.

increased and, sometimes conﬂicting regulatory mood is

In addition to retail customers not being the target investors for many funds, the rule is not being used for

practically aﬀecting your clients? NJ: You’re referring to the fact that the bad actors rule,

other reasons. One is that there is a rule proposal that

which came out of Dodd Frank, makes oﬀerings more dif-

would require an issuer to ﬁle a Form D 15 days prior to

ﬁcult, while the elimination of the restriction on general

any general solicitation activities. That will not help the

solicitation came out of the JOBS Act and has the intent of

“slip up” situations I mentioned. How do you ﬁle the Form

making it easier for people to raise capital. Both of these

D 15 days ahead of an inadvertent statement made in an

rules reached the SEC at around the same time and some

interview? People are discussing whether there may be

of the SEC commissioners did not like the fact that it was

something generic that an issuer could ﬁle that would

going to be easier for hedge funds to raise money – that is

help these situations. We will have to see what the ﬁnal

they did not like the Reg D amendments that allow general

SEC rule states when it comes out.

solicitation. On the other hand those commissioners did

There are also open interpretive questions on the rule.

like the bad actors disclosure rule. The two amendments

For example, if an issuer engages in a general solicitation

ended up being kind of a package: on the one hand it’s

the issuer must take “reasonable steps” to ensure that each

going to be a little bit easier for issuers, on the other hand

investor is an accredited investor. What does that mean?

it’s going to be harder for issuers.

What additional steps now have to be taken?

The conﬂicting regulatory mood makes our clients cau-

Also, if a fund is in continuous oﬀering for ﬁve years

tious. The hedge funds know that the regulators don’t like

and starts to do general solicitations in year three, does

hedge funds and I think our hedge fund clients in general

the fund need to take the additional reasonable steps

are being very conservative and not going out on a limb,

solely with respect to new investors after year three or

or taking aggressive interpretations, because they feel

does the fund have to go back to the beginning of the of-

like they are a target of regulators.

24 / lawdragon

www.lawdragon.com

PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

[ INSIGHTS ]

LEOR LANDA DAVIS POLK (NEW YORK)

BY CATHERINE MCGREGOR

Leor Landa, a partner in Davis Polk’s topflight investment management/private funds group has extensive experience advising on all aspects of private funds, including fund formation. Here he discusses the myriad complications and benefits of endowmentstyle funds. JANUARY 2014 Lawdragon: Endowment style investing seems to have been a strategy mainly utilized by large institutional investors, can you tell me how it’s being deployed as a private fund product? Leor Landa: The concept of endowment-style investing continues to evolve. It has historically been used by large endowments with long-dated assets to try to capture equity-like returns while using broad diversification to smooth volatility over time, taking advantage of the fact that the asset base is stable and long-lived. The diversification goes beyond just mutual funds, hedge funds and private-equity funds into real assets like timber, real estate, commodities, currency and precious metals, as well as derivatives and structured credit. It also tends to diversify across the capital structure and across various markets and jurisdictions. Several managers have sought to replicate this concept by offering a private fund product with similarly broad diversification. What people are trying to capture is akin to what an endowment is: long assets that need to be preserved and grown over a long period of time. If you have the ability to invest over a long horizon, it opens up certain asset classes and certain styles of investing that are not open to people who need quarterly or other periodic redemptions, like traditional hedge funds, or who need to manage to a limited investment period and term, like traditional private equity funds. It allows for a completely different approach to investing. LD: What does it take for a large endowment to accomplish that, and how can others? LL: Large endowments have sophisticated teams of www.lawdragon.com

people who can focus on this strategy. In public equities, for example, a large endowment might diversify across a number of different managers across the world with a number of different strategies, then do their own risk analytics on top of that and layer on derivatives and swaps to bring in or hedge out other market exposures to smooth out the portfolio as a whole. That takes a lot of work, a lot of effort and staff and it is expensive – a $25 billion endowment can do that; a $1 billion foundation might not be able. Some fund managers have launched all-asset-allocation type products, which replicate the concept that the largest endowments take and offer this to foundations, endowments and family offices that have the same long-dated assets but not the resources and the expertise to deploy them in this strategy. Which all sounds great, but from a fund formation point of view it creates a lot of complexity! LD: When you create one of these funds, is the onus on the fund manager to provide all the research and analysis of risk in the asset allocations? LL: That’s right, and different fund managers approach it differently. Some will offer extremely tailored products that reflect each investor’s risk appetite, existing market exposures and cashflow needs. Some managers don’t offer tailored products, they have a broad asset-class allocation fund into which all of their clients invest. In both, there are layers of analytics, risk monitoring and hedging. The idea would be, from the investor’s point of view, that you are outsourcing the function that the big endowments have in-house. LD: Why do you think this has become more popular – is it a result of the financial crisis or was it happening before? LL: It was happening pre-financial crisis - it actually slowed down a bit during and after, as did most fundraising – but there seems to be a renewed interest in the concept now. If we go back to 2000, big institutional investors had piled into private equity as their main “alternative” investment style; hedge funds had not quite taken off but they were on the rise. What you saw in the recession of 2001-2002 was that private equity had an overhang of lawdragon

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PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

capital – there was a lot of uninvested, committed capital

All of this is done to try to accommodate diﬀerent types

and fundraising and dealmaking stagnated. Meanwhile,

of investors, with diﬀerent tax and regulatory sensitivities,

investors that had invested in hedge funds, or that had

investing from diﬀerent jurisdictions into diﬀerent assets.

exposure to real estate and other real assets, were better

With a deﬁned strategy, it is relatively straightforward to

positioned to ride through the recession.

find the optimal mix of flexible and fixed structuring. With

Some institutional investors looked at that and said “Maybe we were a bit limited in our approach, maybe if we were to diversify we would have come through the recession

an extremely broad strategy, as we have been discussing, it is much harder to ﬁnd that equilibrium. To give a taste of the complexities, consider how the

better.” That opened the door to the rapid expansion in

investment manager is going to get paid. Typically they are

hedge fund and other “alternative” strategies and, at the

compensated with a management fee and a performance-

end of the spectrum, to the endowment style of investing. LD: How did those big endowments come up with the concept in the ﬁrst place?

based compensation, and they want that to cover their total performance net – across all the investments. That seems straightforward enough, but think about

LL: They have a pool of capital that gets to behave dif-

the nature of the underlying funds and assets held by

ferently than a hedge fund, mutual fund or private equity

an endowment style fund – which will include interests

fund – endowments can look forward decades with their

in hedge funds, private equity funds, real estate funds,

capital, take a broader view of the markets and seek the best risk/reward across asset classes. They can invest across markets and asset classes that are non-correlated or at times even contra, and they can choose the best risk/ return opportunities across the whole spectrum at any time. LD: From your perspective, what are the major challenges in terms of the legal structuring of a fund of this type versus the more traditional private equity or hedge fund structure?

“ENDOW MENT-S T Y LE FUNDS TEND TO BE SOME OF THE MOS T COMPLIC ATED FUND S TRUC T URES – THE TAI LORED FUNDS ARE THE MOS T COMPLE X OF ALL .” — L EO R L A N DA

LL: Endowment-style funds tend to be some of the most complicated fund structures – and the tailored

mutual funds, etc. Hedge funds generally compensate a

funds are the most complex of all. Hybrid funds, where a

manager for performance on an annual basis, while private

hedge fund pursues private-equity style strategies or vice

equity funds compensate a manager for performance only

versa, are in and of themselves quite complicated and can

when they realize investments, which could take years.

really increase the complexity of a fund agreement. But

Currency funds are totally liquid; and with real estate

they don’t hold a candle to the complexity of this, given

funds it could be a decade or more before you see an exit.

the ﬂexibility to invest across all types of asset classes

So, looking at this diverse portfolio, how do you measure

with varying liquidity and cashﬂow requirements. This

performance? Do I measure on a pre- or post-tax basis?

ﬂexibility is integral to the asset strategy – you need to

How do I value illiquid investments? Where do I gener-

be able to accommodate completely illiquid assets and

ate cash for the manager’s compensation if a signiﬁcant

completely liquid assets, and you have to be able to accom-

portion of the portfolio is illiquid? How can I structure

modate across jurisdictions and all diﬀerent instruments.

the compensation arrangements so that the investment

But each of those variables raise their own, sometimes

is tax eﬃcient for the investor and the compensation is

conﬂicting, tax and regulatory implications.

tax eﬃcient for the manager?

PHOTO BY LAURA BARISONZI

If you think about a typical private equity fund, it is structured as a tax-transparent vehicle and when you invest you do a deal-by-deal structure. If you think of a hedge-fund structure, you don’t do

LD: What about the question of liquidity? LL: That becomes very difficult. In a hedge fund there’s typically periodic liquidity, frequently after an initial lock-up period. In a private equity fund, there is

deal-by-deal structuring because hedge funds are more

no liquidity, with cash distributed when portfolio invest-

likely to be trading actively, so they tend to oﬀer hardwired

ments are realized.

tax and regulatory structures. www.lawdragon.com

If this all-multi-asset fund is going to invest across many lawdragon

/ 27

lawdragon insights

asset classes, what can investors expect with liquidity?

can achieve scale, the business can quickly reach a tipping

There might be signiﬁcant cash needs for the portfolio as

point where the beneﬁts outweigh the infrastructure and

it makes capital commitments to private equity, but the

all the operational complexities that go with the product. LD: What’s the average life span of these funds?

be invested into a hedge fund or a currency fund in the

LL: In theory they are perpetual – they operate more

meantime, but that creates a deceptive appearance of

like a hedge fund in that way than a private equity fund.

liquidity in the endowment portfolio. Also, when money

That is part of the challenge of the liquidity, as you re-

is eventually distributed from the private equity funds,

ally want to take advantage of the fact that you can have

does it get reinvested?

these assets for a long time.

It can be rather hard to peg speciﬁc liquidity rights in these funds, which makes sense if you consider that the products are trying to replicate the experience of an endow-

LD: Is the investor base fairly international as well? LL: Yes and no – we have seen some sovereign wealth funds invest, but the sweet spot is small- to mid-size

ment that has no need to satisfy investor liquidity needs.

foundations, endowments and family oﬃces. There are

Investors want liquidity, but they have to be careful not to

a lot of endowments and family oﬃces that are big, but

have the need for liquidity erode the strategy of the fund.

not so big as to justify all the staﬀ and infrastructure

LD: Can you talk a bit about the tension between returns and liquidity? LL: As is probably obvious by now, there’s a conﬂict

necessary to run this product. LD: Part of the attraction for investors is the access to a whole range of funds as well?

between the long-dated nature of the assets and an in-

LL: Oh yes. If you are a $800 million endowment, your

vestor’s desire for liquidity. The liquidity terms in many

ability to access some of the largest fund managers is

of these funds tend to be a bit unspeciﬁc and operate by

somewhat limited. You will not have those relationships

reference to the liquidity proﬁle of the portfolio. Essentially,

or be in a position to write checks of a size to intrigue

investors request an exit and that request is satisﬁed over

the premiere managers. One of the things this product

time as the portfolio and strategy permit.

does – like a lot of fund-of-fund products – is sell access

LD: I can see the attraction of this to investors but what’s the attraction to the managers involved, as it seems like such a headache to set up and operate?

by aggregating a number of smaller investors. LD: Are you seeing this strategy increasing? LL: Some of the people who set up before or during the

LL: Great question. Managers who venture into this

ﬁnancial crisis and rode through some diﬃcult times are

area tend to have a lot of experience in implementing the

now stabilizing, scaling and beginning to see some of the

strategy or they are managers that are attached to larger

beneﬁts. The theory is starting to prove itself a bit more.

shops that have the infrastructure to cope – banks, larger

My guess is others are a bit wary now to dive in because of

investments managers etc. I think the attraction for man-

the big set-up costs. But if we look out 12 to 18 months, it is

agers is that it is meant to be a very scalable business. At

an attractive proposition for investment managers of scale

small numbers it is an otherworldly headache, but if you

who think they have or can acquire the right expertise.

28 / lawdragon

www.lawdragon.com

PHOTO BY TIM ROGERS/FREEIMAGES.COM

capital might not be needed for several years. It might

DEBEVOISE & PLIMPTON

“You go to a leading funds group like Debevoise, and not only do you get what’s current, but what terms have evolved — you can contextualize your thinking about what terms to go into the market with and that’s a critical thing.” Summary of ﬁrm structure:

(John Anderson), 1 associate

Debevoise & Plimpton is an international law ﬁrm with its roots in New York. Founded in 1931, Debevoise now has eight ofﬁces in the U.S., Europe and Asia and around 650 attorneys.

London – 2 partners (Matthew Saronson, Richard Ward), 1 international counsel (Cecile Beurrier), 3 associates

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation:

New York – 5 partners (Peter Furci, Adele Karig, Vadim Mahmoudov, David Schnabel, Peter Schuur), 3 counsel (Pamela Boorman, Yehuda Halpert, Rafael Kariyev), 5 associates

New York: 7 partners (Erica Berthou, Jennifer Burleigh, Sherri Caplan, Michael Harrell, Jordan Murray, David Schwartz, Rebecca Silberstein), 1 of counsel (Woodrow Campbell), 6 counsel (Jane Engelhardt, Andrew Goldberg, Timothy Long, Gary Murphy, Richard Robinson, Katrina Rowe), 30 associates

Regulatory: Washington, D.C. – 3 partners (Kenneth Berman, Satish Kini, Robert Kaplan), 3 associates

Hong Kong: 1 partner (Andrew Ostrognai), 1 international counsel (Gavin Anderson), 3 associates

London – 1 partner (Anthony McWhirter), 1 international counsel (Sally Gibson), 1 associate

London: 2 partners (Geoffrey Kittredge, Anthony McWhirter), 1 of counsel (Marwan Al-Turki), 2 international counsel (Sally Gibson, Matthew Grifﬁn), 7 associates

New York – 1 partner (Michael Harrell), 1 associate

Washington, D.C.: 1 partner (Kenneth Berman), 1 associate

The private equity funds practice has associates at all levels, from those fresh from law school to very seasoned senior associates with years of funds experience. Associates typically join the practice full time after their second year at the ﬁrm, after having spent a 12-to-18month rotation working in the corporate practice. Diversity statistics:

7 out of 21 are women = 33%

Global Infrastructure Partners II, an $8.25 billion global infrastructure fund Providence Equity Partners VII, a $5.1 billion global media, entertainment and communications fund Oaktree Opportunities Fund IX, a $4.7 billion global distressed debt fund

Turnover rate – notable departures and hires: Andrew Goldberg, previously Of Counsel with Gibson Dunn, has recently rejoined Debevoise’s funds practice in a counsel position

MINORITY 4 out of 21 = 19%

Asset classes worked on:

2 out of 21 = 9.5%

Covers the full range of funds and separate accounts, including buyouts, debt (senior and mezzanine), distressed (debt and equity), emerging markets, energy/ power, infrastructure, funds of funds, venture capital, hedge, real estate, secondaries, other (including sector funds focusing on healthcare, media/communications, technology and patents/royalties)

OPENLY LGBT Partners/Counsel/ of Counsel

Carlyle, CD&R, EIG, HarbourVest, KKR, Morgan Stanley, Oaktree, Providence

HarbourVest Partners IX, a $2.7 billion investment program

GENDER

Partners/Counsel/ of Counsel

Key relationship clients:

Recent publishable mandates:

Levels of associates:

Partners/Counsel/ of Counsel

ERISA: New York – 2 partners (Lawrence Cagney, Jonathan Lewis), 1 counsel (Charles Wachsstock), 2 associates

Ancillary practice support in key locations: Tax: Hong Kong – 1 international counsel

lawdragon insights he engine of Debevoise’s private funds practice is in New York, and from there,

[ERICA BERTHOU] PARTNER − NEW YORK

Erica Berthou coordinates a globally inte-

“Erica is a force of nature. In baseball

grated team that has resources in London,

they talk about the ﬁve-tool athlete

Washington, D.C. and Hong Kong. The ﬁrm

and she’s the ﬁve-tool athlete − all the

ﬁelds over 50 lawyers in the fund formation arena, act-

skills in abundance that it takes to be

ing for fund sponsors and also investors. The group has

a leading private equity fund forma-

one of the deepest associate benches in the sector, with a

tion lawyer.”

uniformity of quality that enables the group to rebuff the accusation of inconsistency often leveled at large teams. The firm is also notable for its trailblazing track record in diversity with more female partners than any other funds practice globally. In particular, sources pinpoint the firm’s strength in nurturing talent and bringing them on to assume increasing responsibility for key clients. The team has a strong roster of talented younger partners, such as Erica Berthou and Jordan Murray. Debevoise’s select lockstep compensation is seen as an advantage by many fund managers who cite the experience of working with partners with great project management skills who are willing to share the work around to the right experts to make sure the transaction is handled correctly. And when you drill down beyond the partners, clients find “you have the sense of a big machine behind the partners,” as one said. In addition, although the numbers are heaviest in New York, in-house counsel place the Debevoise team among an elite group of firms that can offer coverage in the UK, the U.S. and Asia. The group is among the counsel of choice for the most sophisticated fund formations across all major asset classes, and the team can count firms such as Oaktree Capital Management, KKR and Carlyle as clients. Debevoise also has a notable profile in emerging markets − with seasoned hands in Hong Kong, and a conspicuous penchant for fundraisings in Latin America − uncharted territory for many managers in terms of raising and deploying capital in both a pan-regional format and country-specific funds. In summary, in-house counsel have found the group’s global offering “seamless,” and when added to the firm’s

Grasping the reins in day-to-day management of Debevoise’s global funds practice is Erica Berthou. One of the most common adjectives applied to her is that she is “dynamic.” Clients marvel at her “ultra-ultra responsiveness.” One in-house fund lawyer elaborates: “She’ll answer you within 30 seconds of an email, even if it’s just to say ‘I got your e-mail.’ As an in-house lawyer, you always worry if someone hasn’t answered you, then they’re not dealing with it. So you always feel like you have her attention, she’s all over it, she understands it, and gives you a commercial view − she wants to get the deal done, wants to get the job done.” This commerciality is a common theme among fund lawyers who work with her, with one detailing her “strong feel for the all the issues in a transaction and making sure that we get the right advice for each piece.” Berthou has handled a range of mandates for some of the world’s leading fund managers across a range of asset classes. She has developed a specialty in Latin American investing, an increasing target for managers and a source of capital. MANDATES • Carlyle in raising nearly $20 billion in various emerging markets and Europe, including Carlyle Peru Fund, a $308 million fund, and Carlyle South America Buyout Fund, a $1 billion fund • Global Infrastructure Partners II, an $8.25 billion global infrastructure fund • Oaktree Opportunities Fund IX, a $4.7 billion global distressed debt fund • EQT Credit Fund II, a $1 billion Europe credit op-

on-the-button, user-friendly and substantial tax func-

portunities fund

tion, Debevoise is ﬁring on all cylinders in the private

[JENNIFER BURLEIGH] PARTNER − NEW YORK

funds space.

“Sophisticated structuring advice on emerging market funds” Jennifer Burleigh is known for her ex-

30 / lawdragon

www.lawdragon.com

pertise in Latin America. Her work in emerging markets

year since rankings were ﬁ rst published more than a

has included supporting managers from emergent regions

decade ago, he is “one of the godfathers of the industry”.

in accessing international markets. Her clients include

He is universally popular among general counsel at the

the likes of Gávea Investimentos and Vinci Partners, and

top of the fund formation food chain who appreciate his

she advises across a range of strategies, including energy/

long experience in the ﬁeld. “He was there at the creation,”

infrastructure, buyout, mezzanine, distressed debt, real

explained one interviewee, who went on to add that “he’s

estate and equity funds. Burleigh is notable for the breadth

just got depth of knowledge − both of the particulars and

of her practice. She also works in the ﬁeld of asset manager

also the history, that’s just really not comparable.” Con-

spin-outs and the establishment of new investment ﬁrms,

scious of the succession planning for the group, Harrell

as well as in strategic investments in private investment

has handed some of his key clients oﬀ to younger talent.

ﬁrms, on behalf of sponsors and institutional buyers. In

However, he is still active on fundraising and is currently

addition, she is experienced in the formation of “perma-

working on a number of funds both for new managers

nent capital” and evergreen investment vehicles, employee

and new clients for the ﬁrm. He also is extremely keyed

investment programs and strategic joint ventures.

into regulatory developments and advises the private eq-

MANDATES • EIG Energy Fund XVI, a $6 billion energy and energyrelated infrastructure fund • Odyssey Investment Partners Fund V, a $2 billion U.S. buyout fund [SHERRI CAPLAN] PARTNER − NEW YORK In addition to her work on behalf of sponsors, Sherri Caplan has particular expertise in assisting ﬁrst-time funds. Her skillset spans a full complement of strategies, including buyout, mezzanine, venture capital, infrastructure and real estate funds. She is known for her track record in infrastructure and real estate funds − currently two of the hottest asset classes in the industry. MANDATES • Alinda Infrastructure Fund II, a $4 billion infrastructure fund • TPF II (Tenaska), a $2.4 billion energy fund • Tishman Speyer Brazil Fund III, a $450 million Brazil

uity industry’s U.S. trade association, The Private Equity Growth Capital Council, on global legal developments affecting the private equity industry. [JORDAN MURRAY] PARTNER − NEW YORK “An extremely accomplished negotiator, technician and savvy deal guy.” Jordan Murray has acted for an impressive stable of clients including Clayton, Dubilier & Rice, D.E. Shaw, Providence Equity Partners and Third Point, among many others. He appears on behalf of sponsors and institutional investors in open- and closedended private equity funds, hedge funds, co-investment vehicles and separately managed accounts. In addition, he guides clients through strategic minority investments in private firms and is experienced in restructuring private investment firms. MANDATES • Third Point Hellenic Recovery Fund, a $750 million Greece-focused buyout fund • Providence Equity Partners in raising over $24 billion

real estate fund

for multiple global buyout and credit opportunities

[MICHAEL HARRELL] PARTNER − NEW YORK

Equity Partners VII, a $5.1 billion global media, en-

“He’s very, very good. We had a problem, I went to Mike, he said ‘I will ﬁ x it,’ and he did.” Michael Harrell, having led the growth

funds and separate accounts, including Providence tertainment and communications fund • Clayton, Dubilier & Rice in raising over $16 billion for multiple global buyout funds, including Clayton, Dubilier & Rice Fund IX, a $6 billion global buyout fund

of the Debevoise funds practice for more than 15 years, now co-chairs Debevoise’s broader private equity group. Ranked in the top tier of fund formation lawyers every www.lawdragon.com

lawdragon

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lawdragon insights [DAVID SCHWARTZ] PARTNER − NEW YORK “A truly standout track record in the secondaries space.” David Schwartz is a seasoned and senior member of the group who acts for both sponsors and investors in fund formation, as well as in the arena of secondary transactions. He has been at the forefront of many of HarbourVest’s mandates and

of mutual funds, private equity funds and other pooled investment vehicles. He also counsels mutual fund independent directors and advises operating companies concerning status issues they may face under the Investment Company Act of 1940. Clients note that he is “an impressive lawyer” and oﬀers “invaluable support throughout the decision-making process.” [SATISH KINI] PARTNER – WASHINGTON, D.C.

often works closely with colleagues in the buyout space

Satish Kini wears many hats. He co-

on structured secondary transactions. His expertise in

chairs the ﬁrm’s banking group, in ad-

investor side and secondary work means that he is often

dition to sitting in the corporate and

a savvy presence on the other side of the table from tra-

ﬁ nancial institutions teams. He is ac-

ditional fund sponsors. MANDATES • Dover Street VIII (HarbourVest), a $3.6 billion global secondaries fund • Capital International Private Equity Fund VI, a $3 billion global emerging markets fund

tive in advising ﬁ nancial institutions on regulatory and banking issues, as well as acting for ﬁrms and industry trade associations in connection with regulatory reform issues. It is in this area that he has been spotted by funds counsel. His representations have included advising banks on Dodd-Frank implementation, and he has appeared before U.S. federal banking

[REBECCA SILBERSTEIN] PARTNER − NEW YORK

regulators, as well as the SEC and U.S. Treasury Depart-

Commercially savvy and knowledgeable

policymaking process.

Rebecca Silberstein’s work for clients such as KKR and Morgan Stanley has caught the eye of the market in recent years. She acts for sponsors in the formation of a broad variety of funds strategies, in addition to advising on the acquisitions and dispositions of interests in private equity firms, spin-outs of management teams and the establishment of new firms. She also assists clients with carry plans and employee investment programs. MANDATES • Kelso Investment Associates VIII, a $5.1 billion U.S. buyout fund • KKR Energy Income and Growth Fund I, a $2 billion energy and natural resources fund • Trident VI, a $4.25 billion global financial services buyout fund [KENNETH BERMAN] PARTNER – WASHINGTON, D.C. Kenneth Berman focuses his practice

ment on behalf of clients wishing to participate in the

MANDATES • Financial industry groups including the American Council of Life Insurers and the Financial Services Roundtable, in connection with the rulemaking process under Dodd-Frank [KATRINA ROWE] COUNSEL − NEW YORK “A fantastic asset” At the up-and-coming end of the New York team, Katrina Rowe is acknowledged to be “adept at dealing with LPs and knows how to say no in a nice way” by her loyal client following. She also acts for investors, and her fundraising activities encompass buyout, venture capital, mezzanine and funds of funds matters. MANDATES • Oaktree Opportunities Fund IX, a $4.7 billion global distressed debt fund

on providing regulatory and compliance advice to ﬁnancial services ﬁrms, particularly investment advisers and sponsors

32 / lawdragon

www.lawdragon.com

[MATTHEW HOWARD] ASSOCIATE − NEW YORK “If you speak to him, he gives you counsel. He’s not half-paced.” When you’re advised by Matthew Howard, “you feel like you’re in safe hands,” we were told. On top of that, he has a knack of putting

• Global Infrastructure Partners II, an $8.25 billion global infrastructure fund • Carlyle South America Buyout Fund, a $1 billion South America buyout fund [PETER FURCI]| PARTNER − NEW YORK “I like to say that Peter’s not just the

clients at their ease: “he’s got a nice, easy ﬂow about him:

best tax lawyer I know, he’s the best

he’s easily reachable, friendly, conversational, he’s got a

lawyer I know.”

personality − you’re not talking to a brick wall.” He acts for sponsors of closed-ended funds targeting markets such as Europe, South America, Africa and Asia, on top of representing U.S. funds. MANDATES • Odyssey Investment Partners Fund V, a $2 billion U.S. buyout fund

Peter Furci is based in Debevoise’s New York oﬃce, but as a member of the Latin America group, his practice stretches to private funds tax advice in that region as well. In addition to his emerging markets work, he provides tax support in the hedge, mezzanine, infrastructure, real estate and distressed debt spaces. Fund sponsors explained to us that they ﬁnd him “absolutely phenomenal,” because he is “very strong technically, in-

[PETER SCHUUR] PARTNER − NEW YORK

credibly client-responsive and personable.”

Practical, proactive approach to US

MANDATES

and UK tax systems. Before joining the ﬁ rm’s New York group, tax partner Peter Schuur spent eight years in Debevoise’s London oﬃce. His experience there led one fund counsel to describe him as “the only guy I know that really understands UK and U.S. tax issues.”

• Alinda Infrastructure Fund II, a $4 billion infrastructure fund • Oaktree Opportunities Fund IX, a $4.7 billion global distressed debt fund [JONATHAN ADLER] ASSOCIATE − NEW YORK

Another in-house lawyer elaborated on this facet: “He

Jonathan Adler is earmarked by clients

really gets both systems − neither of which are designed

as “a very talented guy.” He acts for spon-

to work together.” Coupled with this understanding, fund

sors in a number of emerging markets

counsel really like this lawyer’s proactive approach to

such as Africa, India and South America,

problem solving - even before the problem has presented

as well as U.S. and European-based funds,

itself. One satisﬁed client told Insights that this thinking

and his experience has included buyout, growth capital,

ahead really sets this lawyer apart for them, “Peter told us:

infrastructure, energy and credit funds.

‘there’s draft legislation in U.S. Congress about carry so I’m going to set up your structure this way, which should that ever pass will deal with it that way’ — he’s really at the cutting edge of this stuﬀ.” Schuur’s recent mandates on the fund structuring side include signiﬁcant work in Latin America, one of the most interesting new markets for fund managers; here he represented Carlyle in structuring funds focused in the region. MANDATES • EQT Credit Fund II, an $1.16 billion Europe credit opportunities fund • Carlyle Peru Fund, a $308 million Peru buyout/venture fund www.lawdragon.com

[ANDREW AHERN] ASSOCIATE − NEW YORK Andrew Ahern’s practice focuses on advising sponsors of private investment funds, including buyout, energy and infrastructure and credit opportunities private equity funds and hedge funds. [RICHARD ROBINSON] COUNSEL − NEW YORK Richard Robinson advises sponsors of private investment funds, including buyout, infrastructure, real estate, emerging markets and mezzanine funds. lawdragon

/ 33

lawdragon insights [GEOFFREY KITTREDGE] PARTNER − LONDON “He knows the European approach to things but is able to bring the American lawyer-type business sensibility.” Geoff rey Kittredge has been based in the London office since 2002, where he chairs Debevoise’s European private equity funds operation. He’s an experienced and “phenomenal” hand, say sponsors, who hail from a client list from the buyout, mezzanine, real estate, secondaries, and funds of funds spaces. He is also a member of the EMPEA Legal & Regulatory Council. MANDATES • Baring Vostok Private Equity Fund V, a $1.5 billion Russia/CIS buyout fund • Park Square Capital Partners II, an $1.17 billion Europe mezzanine fund [SALLY GIBSON] INTERNATIONAL COUNSEL − LONDON “Very effective, very responsive.” Sally Gibson represents fund sponsors on private equity funds, alongside hedge and other investment funds, from the London office. Clients report that she has “really absorbed herself” in this field, and the breadth of her practice extends

MANDATES • Global Infrastructure Partners II, an $8.25 billion global infrastructure fund • Park Square Capital Partners II, an $1.17 billion Europe mezzanine fund [ANDREW OSTROGNAI] PARTNER − HONG KONG “Very well suited to emerging managers that may not be as familiar with the rules of the road.” Andrew Ostrognai chairs the Debevoise Asia private equity funds practice from Hong Kong, and is something of a ﬁgurehead in this market, spearheading a team that is very much a go-to for general partners operating in the region. He serves as a member of the Advisory Council of the Emerging Markets Private Equity Association, and his fund formation experience is broad, encompassing large pan-Asian buyout funds, smaller focused sector and country-speciﬁc funds, RMB-denominated funds and separate account programs. Interviewees highlighted his “avuncular” style and concern with “commercial − not just the legal.” His client list is an eye-watering mix of some of the emerging markets biggest sponsors, including the likes of Hony Capital and CDH Investments. MANDATES

to regulatory work alongside her fund formation advice,

• CDH Fund V, a $2.6 billion China growth capital fund

meaning that “she knows the whole thing.”

• Hony Capital Fund V, a $2.4 billion China growth

MANDATES • EQT Credit Fund II, an $1.16 billion Europe credit opportunities fund [RICHARD WARD] PARTNER − LONDON “Very good at turning complicated tax issues into short sentences.” Richard Ward chairs the firm’s UK tax practice, which fields a strong offering in advice on fund formation tax issues. Fund counsel were perfectly clear on what makes Richard stand out: “He’ll give you good, commercial tax advice.” The user-friendly service he provides to clients is greatly valued, with one describing his style thus: “He often wants to pick up the phone rather than to email you − to understand a point,

capital fund [GAVIN ANDERSON] INTERNATIONAL COUNSEL − HONG KONG “Extremely bright, extremely responsive, very intelligent: he just gets it.” Gavin Anderson enjoys much visibility on the ground in fund formation work for sponsors. “He’s more qualiﬁed than me,” one interviewee said, and perhaps this goes some way to explain his involvement in some of Debevoise’s ﬂagship representations. His clients include CDH Investments and Baring Private Equity Asia. MANDATES • CDH Fund V, a $2.6 billion China growth capital fund

but also to be able to give you more freestyle tax advice.”

34 / lawdragon

www.lawdragon.com

PRACTICE SPOTLIGHT EMERGING MARKETS

[ INSIGHTS ] BY CATHERINE MCGREGOR

Erica Berthou is rapidly rising to the top echelons of fund lawyers. A member of the Debevoise & Plimpton’s private equity funds and investment management groups, she specializes in advising sponsors of open- and closed-ended private investment funds, coinvestment funds and separately managed accounts in U.S., European and emerging markets, with a particular expertise in Latin American investing. She represents a range of leading fund managers including Brookﬁeld Asset Management, The Carlyle Group, Oaktree Capital Management and Global Infrastructure Partners. She sat down and spoke to Insights about the opportunities she sees in Latin America and fundraising approaches for managers in that region. JANUARY 2014 Lawdragon: There has been recent publicity about

ERICA BERTHOU DEBEVOISE & PLIMPTON (NEW YORK) investor interest. LD: Within Latin America, what are the most attractive markets for investment and why is that? EB: Most Latin America funds raised to date focus on Brazil. This is primarily driven by Brazil’s rapidly growing economy combined with a relatively stable and developed market. However, fund managers and investors, for example, are also increasingly viewing Colombia, Mexico and Peru as attractive. Even more so as of late, in part due to the price-levels in Brazil and the many Brazil funds already raised. We have even seen a Peru-only fund being raised by an international fund sponsor. That being said, some investors will prefer pan-Latin America funds focusing on more than one or a couple of Latin American countries so as to diversify the risk posed by investing in a small number of emerging countries. LD: Are there particular types of funds or asset classes that you see investors being more attracted to than others? EB: Because of the nature of this market, where growth and natural resources are among the primary drivers for investment, you will ﬁnd that growth funds and various resource funds are at the top of investors’ lists. We also

the increase in fundraising in Latin America. What is it

see a number of mid-market buyout funds attract interest.

that is making the region so attractive for managers now

There certainly are some larger buyout funds, but there

compared to other markets?

are a number of funds by prominent sponsors in that

Erica Berthou: The ﬁrst bucket of drivers is really

space and it is starting to be a crowded space. There’s a

the rapid growth of the economies, which is creating

lot of dry investment powder in the region and in Brazil,

investment opportunities.

in particular, driving prices up in the buyout space. There

In most countries there is a growing middle-class with

is also a real estate fund and infrastructure fund focus

improved purchasing power. And, in Latin America, the

in the region. There are a number of fundraisings in that

consumer industry is one of the industries of interest.

space right now.

The region also has signiﬁcant natural resources, so you

LD: Tell me a bit more about the impact of dry invest-

see many funds focused on agriculture, timber, oil and

ment powder in the region and how that is aﬀecting things?

gas. At the same time, Latin America generally has more

EB: The high levels of dry powder in the region may

mature corporate governance structures, a quite developed

actually stall Latin America fundraising activities. Inves-

legal framework and provides for more political stability

tors will want to see that fund managers can put the capital

compared to certain other emerging markets. The second bucket of drivers is that private-equity fund

to work before committing more capital. Also, a number of billion-dollar funds were raised a few years ago and

investment in Latin America is also starting to yield bench-

they are in the process of being deployed. If you were to

mark statistics that compare favorably to other emerging

generalize, I think the size of the funds currently raised

markets and certain developed markets, further fuelling

generally is smaller. All in all this may lead to overall lower

www.lawdragon.com

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PRACTICE SPOTLIGHT EMERGING MARKETS

fundraising numbers for a while, even though investors are intending to increase their investment allocations to the region. LD: Are there structuring issues that managers looking to Latin America for the first time have to be aware of, particularly on a jurisdiction-to-jurisdiction basis? Is there a difference between international Limited Partners versus domestic LPs? EB: There are a number of special considerations to bear in mind when raising capital from Latin American investors. Much of the capital comes from Colombian, Chilean and Peruvian pension plans. You will have to comply with the local marketing rules irrespective of whether the fund will invest in or outside Latin America. Peru creates a lot of challenges, but is an interesting jurisdiction because of increased allocations from Peruvian pension plans to private equity. Each fund needs to be registered with the regulator and the regulatory framework is also undergoing significant changes (expected to come into force late this year); this is a lengthy

“THERE IS NO ONE-SIZEFITS -ALL FUND S TRUC TURE FOR ALL OF L ATIN AMERIC A . BUT THE GOOD NE WS IS THAT AT THIS POINT A NUMBER OF DE VELOPED S TRUC TURES E XIS T. A FUND MANAGER WILL NEED TO LOOK AT WHAT COUNTRY OR COUNTRIES IT WILL INVES T IN, WHAT T YPE OF ASSE TS THE FUND WILL TARGE T AND FROM WHICH INVES TORS C APITAL WILL BE R AISED TO ARRIVE AT THE MOS T APPROPRIATE S TRUC TURE.” — ER I C A BER T H O U

process that can take several months. The fund manager needs to demonstrate experience, that it has a certain amount of assets under management, agree to certain investment limitations relating to borrowing (short-term only) and derivatives (only for hedging purposes) and agree to limitations on in-kind distributions (which are not permitted at all). Several fund managers have now registered funds in Peru so the good news is it is not entirely unchartered territory. Chilean pension funds need to invest in international PE funds through locally registered feeder funds, which need to be marketed by a local intermediary and managed by a local manager. Customary terms such as recycling, LP payback provisions, default and transfer restrictions impose challenges, but all of them are manageable. Colombia is a more straightforward jurisdiction than Peru and Chile. If appropriately managed, no local registration or intermediary should be required. There are some qualiﬁcation requirements imposed on the fund manager, but experienced managers should not have a PHOTO BY LAURA BARISONZI

problem meeting those. LD: Is there any standard approach to private funds in Latin America? EB: There is no one-size-ﬁts-all fund structure for all of Latin America. But the good news is that at this point a number of developed structures exist. A fund manager will need to look at what country or countries it will inwww.lawdragon.com

vest in, what type of assets the fund will target and from which investors capital will be raised to arrive at the most appropriate structure. In Brazil, the favorable tax treatment afforded to nonBrazilian PE investors in so called “FIPs” (Fund for Investment in Equity Participations) lead most fund managers to incorporate a FIP in their fund structure. The FIP is a regulated Brazilian vehicle particularly suited for private equity investments. There is often a complex layered fund structure imposed above the FIP, designed to address tax, regulatory and contractual considerations of the fund investors and the fund manager. This is an area in which international and local legal counsel need to work closely together to create bespoke fund structures. However, equally important to the fund structure itself is also to pay attention to the below-the-fund acquisition structure. Various acquisition structures may be implemented on a deal-by-deal basis. Tax treaties between certain international countries and Latin America play a role here: Spain has a favorable tax treaty with Latin American countries, for example. At the end of the day, because there is no one-size-fits-all structure and because the legal, regulatory and tax landscape may well develop during the investment phase of a fund, it is crucial that the fund documentation provides for flexibility to cre-

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/ 37

lawdragon insights ate alternative fund vehicles and acquisition vehicles

retain customary fund terms with international fund in-

throughout the life of the fund. Even a fund focused on

vestors, you can have a local vehicle for Brazilian pension

a particular country typically would have the ﬂexibility

funds and an international vehicle with other investors,

to invest some amount of its capital in other countries so

each having diﬀerent terms. That creates a fair number

you would need nimble structuring ability to cover also

of conﬂicts issues from a ﬁduciary and investor relations

such situations.

perspective. As a result, international sponsors tend to view

LD: In regard to Brazil, what are the advantages and

Brazilian pension money as hard to raise and get comfort-

limitations of the FIP and the Fund for Investment in

able with. Ultimately this may foreclose the opportunity

Emerging Companies (FMIEE) models?

for Brazilian pension funds to invest in funds with the full

EB: As mentioned previously, the FIP can create tax

array of premier fund managers. This market is currently

advantages for foreign investors and the FIP is a good

undergoing development and certain Brazilian pension

vehicle for investment in stock of companies. However, it

funds are starting to align their requests and expectations

is not a favored vehicle for investment in real estate and

with those of the broader investment community.

debt because of FIP limitations imposed on those asset

LD: Environmental, Social and Governance (ESG)

classes. Another limitation is that no more than 40 percent

issues seem to play a large part in due diligence concerns

of FIP quotas can be owned by a single investor and its

for LPs in this market — can you discuss if and how that

related entities so you will need a diversiﬁed investor pool

has aﬀected any funds you have worked on?

and you typically would end up with more than one fund

EB: Based on my experience, fund investors gener-

vehicle as a result. There are certain blacklisted jurisdic-

ally are more focused on ESG issues compared to only a

tions that cannot be used to invest directly in a FIP, such

couple of years ago, although the focus on these issues is

as the Cayman Islands, if one is to take advantage of the

perhaps more pronounced in connection with emerging

favorable tax treatment.

market activities.

Finally, it is important to bear in mind that the FIP is

One of the fundamental notions when you are talk-

a regulated vehicle so it comes with some hair on it. The

ing about environmental, social and governance factors

incorporation process is more cumbersome than what

as part of private equity investment is the positive (or

you would expect from a Delaware vehicle, for example,

negative if you are on the wrong side) impact such factors

including from a timing perspective. The oﬃcial govern-

may have on investment returns. This may range from

ing document of the FIP is in Portuguese and publicly

good working conditions for factory personnel to eﬃcient

available on the regulator’s website. A FIP also doesn’t

decision-making procedures in a company. Some of the

provide for limited liability for its investors. These are a

things that we may take as a given in developed markets

few of the reasons why it rarely serves as the vehicle that

due to market practices and legal requirements are not

foreign LPs invest directly in and why some structuring

as controlled in certain emerging markets. LPs will want

on top of the FIP is required. LD: It’s been said that Latin American investors, par-

to know that the fund managers are focused on this; they want to know that fund managers have ESG policies in

ticularly Brazilian pension funds, have traditionally had

place and that compliance is monitored in each step of

more appetite for direct investment. Is this still the case

the investment chain (diligence/acquisition, investment

or is the traditional LP model now taking hold more?

management and exit).

EB: It may be interesting to focus on Brazilian pension

In some of the emerging markets funds we have worked

funds in this context. They have been uncomfortable with

on there are very developed ESG procedures and they

the traditional LP model, where LPs take a passive role

become part of the contractual framework governing how

in customary investment and exit decisions. They typi-

the fund is managed. Governmental and supra-national

cally request representation on the sponsor’s investment

investors can be helpful to fund managers in developing

committee, which would be very, very rare in a traditional

their procedures in this regard.

fund model. Local requirements also give them more gov-

Ultimately, if there are teeth to the procedures, a fund

ernance rights in respect of fund expenses, fund manager

manager would be required to work with portfolio com-

removal provisions and conﬂicts of interest.

pany management to address any ESG concerns raised

To address these special requirements and at the same 38 / lawdragon

in connection with the portfolio company’s activities. www.lawdragon.com

PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

[ INSIGHTS ]

JORDAN MURRAY DEBEVOISE & PLIMPTON (NEW YORK)

BY CATHERINE MCGREGOR

Jordan Murray is among the elite Private Funds lawyers at Debevoise & Plimpton, where he practices with the private equity funds and investment management groups. He advises sponsors of, and institutional investors in, open- and closed-ended private investment funds, co-investment vehicles and separately managed accounts. He represents numerous private fund clients, including BGI; Clayton, Dubilier & Rice; GE Asset Management; Newport Global Advisors; Pharos Capital; and Providence Equity Partners. He spoke to Insights about current trends in private funds’ use of separate accounts. JANUARY 2014 Lawdragon: Let’s start oﬀ with a sense of the evolution of separate accounts, essentially what they looked like when they ﬁrst started versus how they’re being used now and how their terms and structuring have changed? Jordan Murray: I would think my experience dovetails with the market. There’s really been an explosion in separate accounts over the past few years. Before that, what I had seen more of was investment management agreements, where managers were being paid a fee to advise clients on a discretionary or non-discretionary basis, but really the clients were the owners of the underlying assets and they were really management agreements. What I see now as more prevalent in our industry is single-investor partnerships where our clients are typically the sponsors, although there are times we’re on the investor side, as well. It almost looks like a blind-pool partnership, just like a typical private investment fund where the manager takes a capital commitment and there are certainly sometimes discrete investment restrictions, or parameters, in which the manager may go out and buy assets and manage them for the individual client. In that sense it feels very much like a private equity fund that I would raise for a blind-pooled multi-investor www.lawdragon.com

fund. But, the differences are: they are bespoke, in so many ways, and the investment restrictions may be much tighter, or dissimilar, and you’re really getting into the weeds with your individual client investor, as to what they’re looking for. It goes down to controls, so that the investor very often has the ability to shut off all their investments at any time. There are a lot more governance restrictions where you’re not talking so much about maybe key-man protections and the like, where the investors as a whole have the ability to make certain decisions. In the partnership context, the sponsor will continue to manage out the assets; in the investment-management agreement context, the client walks away with the assets and the music stops on fees and rights. LD: So any portfolio companies would shift completely to ownership by the investor? JM: It would. It is exceedingly rare to see those arrangements on the buyout, growth equity, or equity investment front, where it’s private investments. You’d see that with hedge-fund firms, or other liquid-type strategies. You may even see it in some credit strategies on the private side where the client could walk away actually having ownership over the assets. I see fewer separate accounts on the equity side. And even in the real estate space, it is typical that new investments stop at the manager who manages out those investments, and there may be rules about how that happens, and a significant scale-down of fees if that happens. But as I said, it’s exceedingly rare that the investor then has control of the assets. LD: You mentioned that separate accounts are becoming more popular. Why do you think that is? JM: It’s up and down and for a number of reasons why they became more prevalent. Maybe it makes sense to talk about the different kinds of separate accounts out there. Some, for the large-asset managers, it’s almost like a large fund-of-funds, where you saw Texas Teachers [the Teacher Retirement System of Texas] devoting $3 billion to the KKRs of the world, or the State of New Jersey, where really they’re making enormous commitments to multi-product managers. lawdragon

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PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

One is the large, extremely large - at least the examples in the press are billions - more of a fund-of-fund type ap-

That generally covers the universe. In examples two and

proach for the largest of managers, where the account is

three there’s a number of diﬀerent ﬂavors of account that

investing either in, or alongside, a number of this large

can ﬁt in there. And we generally see them as being more

sponsor’s funds. These funds typically come with lower

prevalent on the credit side.

fees, sometimes netted carry across products, bespoke reporting and heightened governance rights. The next is a separate account with a focused invest-

LD: Why are separate accounts becoming more popular? JM: For the manager in the fund-of-fund type model, it’s a huge boon because you’ve got $3 billion. For the

ment strategy, so maybe more limited than an existing

investor they have a great amount of control, they largely

fund, or as a hybrid of a sponsor’s funds out there, or

come with reduced fees, and it’s almost as if you’re invest-

potentially a diﬀerent investment strategy. It’s just a new

ing in the underlying funds, in or alongside, but with

strategy. That could be a sponsor again wanted to create

more beneﬁcial terms. The beneﬁcial terms largely are

a track record, or saying, “I go out and source all these

economic-related. It may mean that your investment in

types of investments but I would never do something with

the equity fund, and the real estate fund and the debt

less than a hundred billion [dollars] equity from a large

fund are netted for carry purposes, so if one’s up, one’s

buyout and I see all these growth opportunities, I’d love

down; you know, you’ll receive less carry on the whole. It

to get in there.” Those types of separate accounts may or

may mean that it’s a lower management fee, it may mean

may not come with all those goodies that I went through,

that you have particular reporting requirements that you

economics, certainly not the netted carry; it’s not about

need done by your sponsor, and you’ll get those in these

that, but possibly governance and greater transparency

types of funds.

or potentially just bespoke reporting.

Those really popped up, post-Lehman crisis, that was

The next is sort of a spill-over type separate account,

the 2009-2011 version, of state plans coming in, and

and this is where you astutely pointed out that look, there

ﬂexing their muscle. I should step back and say the most

may be real protections for investors, but this gives me

frequent players in separate accounts that we see are the

the ability to ﬁnd a new investor and say, look, “You like

state plans and the sovereign wealth funds – the large,

what we’re doing?” It’s sort of a courtship. I can bring you

non-U.S. government funds; these days, largely Asian

into some of my existing funds’ deals, but only if you live

governments, but before that Middle Eastern. If you’re a

within the construct of my existing partnership agreement,

single product manager, it may be your ﬁrst foot in the door

so it frequently means you’ll participate in the large deals

with a non-U.S. sovereign and it may be between funds,

where the fund has gotten its full ﬁll of equity. And I’ll

so you may set up a wholly diﬀerent type of animal where

bring you in, like any other co-investor, and those may

it’s a separate account that’s set up to co-invest with your

be discretionary or not.

main fund to attract these sort of large investors. In large

The next type, is more of a one-oﬀ deal. Where the

PHOTO BY LAURA BARISONZI

has far less appeal to a sponsor.

deals, where the main fund gets its full ﬁll - rather than

sponsor and investor ﬁnd a deal together.

going out to your own investors – and separate accounts

LD: So that’s more like a co-invest?

are rife with investor-relations issues with other inves-

JM: More like a co-invest, and it’s a little bit like a pledge

tors - you might set it up that this new separate account,

fund – you sign oﬀ. You analyze the deal, I either found

let’s say, with your sovereign wealth fund, new relation-

it, or I’m managing it and that again frequently comes

ship, would get to participate in those deals. Sometimes

with a reduced management fee. In all of these, you have

reduced economics, sometimes not, the main beneﬁt to

to think that certainly on this type of an arrangement,

the sponsor is that you create a relationship oﬀ-cycle, with

but even on some of the others, the fee may be based on

this sovereign wealth fund.

invested capital. Not committed capital – it’s a big diﬀerence for an investor.

LD: Say you have your traditional buyout fund with multiple investors, and you have a particular investment

The next may be the least common, but that sort of pledge

strategy for that that’s already closed; you get your foot

fund arrangement where we say I’m allocating a quarter

in the door with our sovereign wealth fund, you set your

of a billion dollars to you, you ﬁnd deals, you bring to me,

separate account up. Could you pursue the same invest-

I’ll approve them, or not. I think that separate account

ment strategies with that separate account?

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lawdragon insights JM: So much of being able to set up separate accounts

speaking to large- or medium-sized investors that say “I

and what happens after separate accounts depends on the

like what you’re doing, but I want diﬀerent. I want only U.S.,

terms of your existing agreements. LD: It does seem if I was an investor in the ﬁrst fund, I might be a bit upset.

I want higher yield, I want to be in the mezzanine space.” We see a little bit of those separate accounts participating in some, but not all, of an investment program of a main

JM: Exactly right and you may actually be protected.

fund, if you will, or a mezzanine fund, whatever it may

There are typically two protections. Let’s call it the single-

be. It’s really those managers that seem to keep coming

product ﬁrms’ documents. One is that I can’t raise a suc-

back and talking to us about separate accounts. It’s also

cessor fund until I’ve used committed invested capital,

where the large investors, frankly, push on them for lower

typically 75 percent of the assets. So you’d have to be

management fees.

careful that this new separate account is not picked up by this successor fund.

LD: It seems to me that a lot of the traditional fund structures today are more like collections of side-letters rather

There’s also oftentimes a covenant that the manager

than just the traditional Limited Partnership Agreement.

will give all investment opportunities to this fund that

How do all the side-letters impact if you then go on and

you’re invested in as the investor before anyone else, and

do a separate account, given that you’ve got all these indi-

it’s why, with this ﬂavor of separate account, it’s really a

vidual provisions with the investors in the main account?

spill-over vehicle. It means, if I’m doing a large deal, I

JM: Side-letters have really taken on a life of their own

would typically go oﬀ and ﬁnd another partner for the

in these funds. You could have your partnership agree-

deal, or I would go to my own limited partners and give

ment, that may be a 110-page document, but then you have

them what they love – no-fee, no-carry co-invest – I have

100- plus side-letters in these large funds. It’s interesting

the separate account oﬀ on the side. And you’re exactly

and you spend a lot of time on side-letters and some of

right, investors are very, appropriately so keen on this

them are really about the individual investor’s needs or

issue and protect themselves. Now, there are some ﬁrms, particularly the multi-product ﬁrms, where their partnership agreements say that

comforts – reporting, business days, Chinese holidays, you know, small stuﬀ that doesn’t have an impact on other investors.

they will allocate investment opportunities on a good

An important note about side-letters, you should take

faith basis. Their investment allocation policy - all of

the position these partnership agreements allow you to

these sponsors are SEC-registrars now, so they all have policies on investment allocation - will dictate how they allocate those investment opportunities. It sometimes can be a little bit loosey-goose - they do it in good faith but also the market works itself out in the sense that you better do right by your investors if you have this product flexibility to allocate investments. Because if it turns out that you are allocating them away to others, your client base won’t be there – your limited partner base won’t be there for the next fund. But that’s why, in my practice, I see separate accounts really booming in terms of, not the fund-to-fund, as in the Texas Teachers separate account, but in this example of the one-off separate account. I see them as being more prevalent in the credit space. In the credit space, it seems like the mouths-to-feed issue is not as pressing, and with our credit managers or at least our managers where they have credit products, they’re talking more and more with investors about separate accounts. And there it is oftentimes, again, off-cycle, where you’ve closed your credit fund. Or, the manager is 42 / lawdragon

“YEAR OVER YEAR, INVESTORS BECOME FAR MORE INTELLIGENT ABOUT ISSUES THAT THEY MAY FACE AND CERTAINLY GOVERNANCE PROTECTIONS IS ONE OF THEM, WHEN THEY THINK ABOUT WHERE INVESTMENTS MAY BE ALLOCATED. PARTICUL ARLY AS THERE’S THIS GROUP OF VERY L ARGE MANAGERS, THAT ARE MULTI-PRODUCT, AND ARE GROWING ASSETS UNDER MANAGEMENT AND HAVE SEPAR ATE ACCOUNTS.” — J O R DA N M U R R AY www.lawdragon.com

PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

enter into side-letters with investors so long as you’re not

the side-letter without your consent, because a lot of these

impacting those investors’ investment experience. So the

funds take this most-favored-nations process where every

side-letter cannot conﬂict with the partnership agree-

investor gets to picket. If you put that in your side-letter

ment, but it can change the deal as between the general

and then you have 50 other investors, who have that right

partner, sponsor and that particular investor. There are

to veto, then you absolutely can’t do it, you just have to go

some areas where side-letters sort of can start to feel a

to the advisory committee.

little bit more separate account - to the extent that an

Frequently when there’s not a restriction in the partner-

investor has a number of excuse rights, their investment

ship agreement it’s a notice requirement to go to the advi-

experience may start to look diﬀerent.

PHOTO BY WEI-CHUAN LIU/DREAMSTIME.COM

Historically these excuse rights have been about alcohol,

sory committee. But I really think, in a buyout, leveraged, growth, equity-type fund, venture fund, it would be very

pornography, and gambling, particularly in a fund that

hard to have a separate account that really takes invest-

isn’t looking at casinos, and so they have not had an impact

ment opportunities away from the main fund, although

on the fund. Every now and again, there are real excuse

investors are always quite worried about it.

rights, that you may, if you are investor A, your portfolio

LD: Are you seeing restrictions on separate accounts

at the end of the day may look diﬀerent than investor B.

as being more of a standard issue in either partnership

In terms of side-letters and how they impact a sponsor’s

agreements, or in the various side-letters?

ability to raise separate accounts, sometimes side-letters

JM: It’s more prevalent because investors are more

really tighten the sponsor’s ability. Meaning an investor will

aware of the issue, for sure. I don’t think it’s so much

say, I’m investing with you, but you cannot raise another

that investors have been burned by the issue. But it’s a

vehicle that invests in this space. Or a typical provision

buzzword in the industry and investors know they’re out

is before you go out and close a separate account - even

there, Debevoise is having on three diﬀerent continents,

an investment-management agreement where you will be

conferences about separate accounts, and so there’s cer-

focusing on equity investments in buyout funds - you have

tainly a much greater awareness. Year over year, investors

to go to the advisory committee, you have to notify them

become far more intelligent about issues that they may

which is a little prophylactic but in the eyes of the inves-

face and certainly governance protections is one of them,

tors, at least, it gives them a little comfort that a sponsor

when they think about where investments may be allocated.

wouldn’t come unless they have a very good reason, or it’s

Particularly as there’s this group of very large managers,

stepping into the cross hairs of our largest investors and

that are multi-product, and are growing assets under

most important investors - at least, most sponsors deem

management and have separate accounts, and investors

that advisory committee to be that group.

are used to thinking through these issues. It’s now unusual

LD: Would they always have to go to the advisory committee for approval?

to have a situation like my client, Clayton Dubilier & Rice, who are raising fund nine now. And if they’ve sourced an

JM: No, it really depends, and it depends what you’ve

investment, that’s where the investment goes, in the cur-

agreed to. If you have a covenant that says I can’t do this

rent funds. There’s less of that in sort of the big boy, or girl,

without advisory committee consent – it better not say in

space now. So yes, there’s more attention paid to the issue

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lawdragon insights and there are good, healthy discussions to be had on it. LD: How much are separate accounts being used in

LD: But if you want to reel in a really big investor, potentially into a future fund it could be worth taking that hit.

the same way as a co-investment strategy? Are you seeing

JM: It could, but if the investment strategy is one where

big investors actually coming to particular managers and

you’re making private investments, they tend to lead you

saying we’re interested in getting into this space, let’s do

to a partnership structure regardless. I mean, there are

something together that’s just you and me?

other issues to think through as well, like custody of the

JM: I view a co-invest as a partner getting to invest,

assets and under the Advisor’s Act what you have to do

getting to make an individual investment decision on a

from the investor’s perspective. Depending on who you

deal. I’ll get diligence on the company. I’ll see the high-

are, there’s this notion of when I terminate, what happens,

yield deck, whatever it may be, so it’s not blind to me - I

are they mine? I think that’s the largest issue from the

know what I’m investing in. Really they are one-oﬀ deals.

investor’s point of view. With the investment manage-

I just actually did it in the real estate space, where a cli-

ment agreement versus the partnership, I think in some

ent of mine went out and found a new investor for them

ways there’s an ease to the partnership structure, and

that was interested in picking up the mezzanine debt on

you get audited ﬁnancials for the entire partnership; it’s

a trophy building in New York City. That’s really a co-

not getting all the ﬁnancials on a deal-by-deal basis. You

invest, and there are economics surrounding that, and

may, in your separate account get bespoke reporting on

interestingly there really aren’t termination provisions

the underlying portfolio oftentimes too.

in the same way, because they aren’t new investments - it was set up for one deal.

LD: Is it pretty much a strategy that you’re seeing conﬁned to the very biggest managers with multi-platform

LD: So it’s not a one-size ﬁts all.

strategies, that the big investors, like the Asia sovereign

JM: No. It’s quite bespoke and interesting, and the lever-

wealth funds and pension funds invest in or is it being

age dynamics change and, well, it very much depends what you’re doing. But all of a sudden you’re just negotiating with one investor over a product. LD: What are the tax implications of a separate account? Are they the same as a traditional fund?

used by smaller managers as well? JM: It’s splashier at the high end. And the press is there. But I think the answer is no. And we’re seeing it with some investors, who maybe take issue with the status quo model and they want to get involved and buy

JM: In the investment management agreement con-

an asset with a manager. So this example of buying up

text the answer is no. From the sponsor’s point of view,

the mezzanine debt, sometime it’s with a new investor

my carried interest - the share of the proﬁts that I take

into private equity who will typically come in one of two

would typically be ordinary income. In the investment

ways: They’ll invest with the fund of funds, so they get a

management agreement context , you would also be wary

product portfolio, or they’ll get a taste of an introduction

of deferred compensation type rules, which would mean

to a manager through possibly a deal. Also sometimes it’s

you might be taking an incentive allocation based on both

with large investors but with small dollar amounts – it’s

realized and unrealized value in the portfolio.

that example of investor and sponsor meet and they get

That is diﬀerent than a private equity model where I take

to create a relationship. Sometimes it’s a sponsor who’s

carry on realized dollars. The beneﬁt to the partnership

starting a new strategy and they’re building a track record,

model is, at least in today’s world, that carried interest

and they may do that with one of their long-term investors

gets the beneﬁt of capital-gains treatment if the underlying

but it’s giving them sort of a seed investment, allowing

character of the income warrants that. That’s really the

them to build a strategy. They may be a typical buyout,

big diﬀerence from the manager’s perspective. From the

growth-equity shop who would like to start a long-short

investor’s perspective, the answer should be you should

strategy, more of a liquid strategy, and they might seek a

be tax neutral, but it’s a material issue for the sponsor.

$25 million separate account, with preferred economics.

LD: Is it potentially a tax disadvantage to do a separate account?

LD: To test it before it went to market? JM: Yes, and be able to build a track record, and then

JM: In an investment management agreement, where

market oﬀ of that track record. You certainly hear more

you’re just advising, sure. It is more tax eﬃcient and a tax

about it at the larger end of the spectrum, both of sponsor

advantage to have a partnership.

and of investor.

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KING & WOOD MALLESONS SJ BERWIN “They have a long track record of consistently delivering great results. They’ve got a team of people, that goes back so many years and for midmarket funds, not just big funds.“ Summary of firm structure: Leading Asian firm King & Wood Mallesons combined with SJ Berwin in 2013 to create the first global law firm headquartered in Asia. With 31 offices across the world and more than 2,700 lawyers, the firm is now one of the largest law firms globally. The combined firms use the name King & Wood Mallesons globally, and King & Wood Mallesons SJ Berwin in the UK, continental Europe and the Middle East. Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: London: 10 partners (Jonathan Blake, Michael Halford, Duncan Woollard, Jonathan Pittal, Patrick Deasy, Ajay Pathak, Cindy Valentine, Shawn D’Aguiar, Ed Hall, Warren Allan), 3 consultants (Josyane Gold, Elizabeth Judd, Simon Witney)

Diversity statistics: GENDER Partners

5 out of 16 are women = 31%

MINORITY Partners

2 out of 16 = 12.5%

Ancillary practice support in key locations: Regulatory: London – 4 partners (Gregg Beechey, Laura Charkin, Tamasin Little, Stephen Pevsner) Key relationship clients: Apax, BNP Paribas, Capital Dynamics, Endless, Investindustrial, La Salle Investment Management, PAI Partners, Patron Capital Recent publishable mandates:

Paris: 2 co-head of investment funds (Arnaud David, Nathalie Duguay)

2013: Advised Swiss-based Invision Private Equity AG on its ﬁfth fund

Luxembourg: 2 partners (Alexandrine ArmstrongCertfontaine and Geoffrey Scardoni), 1 counsel (Thomas Chevalier)

2013: Advised Montana Capital Partners on its ﬁrst fund

Munich: 2 partners (Sonya Pauls and Christian Schatz), 1 counsel Martin Brockhausen)

2012: Advised on Investindustrial Fund V, a $1.72 bilion European buyout fund

Milan: 1 partner (Emidio Cacciapuoti – tax)

2012: Advised on Patron Capital LP IV European property fund, which raised over $1.2 billion

Dubai: 1 partner (Benjamin Aller), 1 counsel (Bilkis Ismail)

Turnover rate – notable departures and hires:

Hong Kong: 6 partners (George Pinkham, Hayden Flinn, Tony Gibson, Yi Zhang, Helena Huang, Minny Siu), 1 consultant (Guo Sun Lee) Shanghai: 2 partners (Yi Zhang, Alan Du) Beijing: 2 partners (Qingjun Jin, Kalley Chan) Sydney: 3 partners (Susan Hilliard, Mark McFarlane, John Sullivan) Madrid: 1 partner (Isabel Rodriguez) Levels of associates: Information not provided by ﬁrm

2013: Partner Graham Nicholson left to join MJ Hudson. Consultant Victoria Younghusband left to become a partner at Speechly Bircham 2011: Two partners, Nigel van Zyl and Oliver Rochman, left to join Proskauer Rose Asset classes worked on: Buyout, distressed debt/special situation, fund of funds, infrastructure, mezzanine, real estate, secondaries, venture/growth capital

lawdragon insights he groundbreaking merger between silver

involvement in this sector goes back to the 1980s, when

circle stalwart SJ Berwin and the Asia-Pa-

he negotiated the agreed statement and guidelines on the

ciﬁc heavyweight King & Wood Mallesons

use of limited partnerships as venture capital investment

made headlines in 2013, and it raised the

funds, with the Inland Revenue and Department of Trade

proﬁle in the Asian market of the father

and Industry. He was admitted to the BVCA’s Private Eq-

of fund formation ﬁrms. Driven by Jonathan Blake, SJ

uity Hall of Fame in 2004. Advising ﬁrms, managers and

Berwin was one of the earliest fund formation practices,

investors on private equity, venture capital, infrastructure,

with expertise dating back 30 years. Such longevity brings

debt and mezzanine funds are key areas for him, as are

a depth of understanding that few can rival, with group

co-investment and incentive structures, private equity

members sitting on committees, councils and working

management structures and spin-outs, plus acting on

groups for the BVCA, EVCA, AIMA, and FSA – a boon

the transactional side.

for clients looking for a nuanced understanding of the regulatory landscape. Such endurance in the marketplace is a result of being able to thrive on change, and in the past decade the ﬁrm has seen much of that, with the departure of a number of partners – people such as Nigel Van Zyl, Mark Mifsud, Richard Watkins, Justin Dolling and John Daghlian, all of whom left for U.S. ﬁrms. Nevertheless, the market still sees the group as being among the few groups capable of really sophisticated funds work, and it is among the most active in Europe, particularly in the mid-market space.

[ MICHAEL HALFORD ] PARTNER – LONDON “He knows the market very well and is highly respected.” Michael Halford heads the London funds practice, and is well-known for his work in infrastructure funds, where he is active in direct funds and funds-of-funds. He also has a broad-based fund formation practice, also covering private equity and real estate, as well as incentive schemes and co-investment

This is mainly from the London oﬃce, but the ﬁrm also

arrangements. He advises managers and investors.

ﬁelds resources in Paris, Luxembourg, Berlin, Munich,

MANDATES:

Milan and Madrid – on top of presence in Dubai, Hong Kong, mainland China and Australia. The group’s offering is broad-based and includes raising buyout, venture, real estate, infrastructure, debt, hedge and funds-of-funds, as well as separately managed accounts, co-investment pools, complex carry, hybrid funds, and secondaries. Loyal clients said the group’s expert skills in fund negotiations come down to “relationship management – it’s a question of ﬁnding your way through the maze of getting what you want and still having people like you.” Or as another client put it, “we didn’t concede any ground, got really good terms, and didn’t upset anyone.” [ JONATHAN BLAKE ] PARTNER – LONDON Credited by many as the architect of fund formation law today, and a thought-leader in European funds. From 2006-2012, Jonathan Blake was senior partner of SJ Berwin and now is the ﬁrm’s head of international funds, based in London. He founded the private equity and private funds practices, and his

46 / lawdragon

• Patron Capital on the $1.2 billion fund raising for Patron Capital LP IV • A leading Asian based financial institution on the establishment and $4 billion plus final closing of a European infrastructure fund [ DUNCAN WOOLLARD ] PARTNER – LONDON In-depth experience in debt funds Mezzanine and distressed debt funds are particular interests of London-based partner Duncan Woollard, as is Italian private equity, and emerging markets, notably Asia and Central and Eastern Europe. He is often visible advising on mandates in the fields of real estate, private equity, infrastructure, and venture funds, as well as funds-offunds, in addition to providing advice on carried interest, co-investment, fund restructurings, spin-outs, mergers, new private equity businesses, and secondaries. MANDATES • NorthEdge Capital on its $375 million fundraising for NorthEdge Capital Fund I, LP

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• Investindustrial in connection with its $1.72 billion Investindustrial Fund V [ JONATHAN PITTAL ] PARTNER – LONDON “A real brain.” Jonathan Pittal is a long-established partner in the London practice. He is active in establishing investment funds in a range of asset classes, as well as structuring fund managers, including conversion to limited liability partnership, and other corporate finance and transactional matters. MANDATES: • Lloyds Banking Group in connection with the secondary sale of a portfolio of private equity related investments to a fund financed by Coller International Partners VI • Unicredit Bank AG and its subsidiaries on the disposal of part of its European private equity portfolio comprising in excess of 30 fund interests [ PATRICK DEASY ] PARTNER – LONDON Patrick Deasy, who co-heads the firm’s Africa group, is at the forefront of a number of funds in emerging markets. His practice includes a significant focus on investor side work – particularly advising LPs on investments into emerging and frontier markets. Clients include Aureos Capital, the emerging markets private equity specialist now acquitted by The Abraaj Group, for which he has acted on most of their fundraisings. [ AJAY PATHAK ] PARTNER – LONDON Ajay Pathak’s practice spans the range of alternative fund categories, notably hedge, infrastructure and private equity. Given the increasing interest in the market in debt-focused strategies, his expertise in debt funds and securities and market regulation is a meaningful function of the funds practice portfolio. Pathak also heads up the firm’s India practice group and has a broad range of experience advising funds and investors working on India strategies.

[ CINDY VALENTINE ] PARTNER – LONDON Cindy Valentine is dual-qualified in South Africa and the UK, having previously practiced in Johannesburg. She has a particular focus on African private equity funds, as part of a practice that takes in fund structuring, raising, co-investment arrangements, management buyouts and secondary disposals and buy-side work, for a client base of private equity firms and investors. She is active in large and mid-market buyout, emerging market, venture and renewables funds, and funds-of-funds. MANDATES: • HSH Nordbank in Project Hanse: the disposal of its portfolio of private equity interests • Several mid-market African private equity funds [ SHAWN D’AGUIAR ] PARTNER – LONDON Shawn d’Aguiar qualified in India, and he worked in Mumbai for more than three years before joining the firm’s London office. He provides advice relating to funds investing into India, as well as on carried interest and co-investment arrangements for India executives, as part of a fund structuring and formation practice that covers private equity, venture capital and infrastructure funds. He advises both sponsors and investors, and has also undertaken secondary transactions. [ ED HALL ] PARTNER – LONDON Building an eye-catching profile. Ed Hall is predicted to have a bright future in fund formation, particularly in the infrastructure sphere. His practice encompasses a range of funds, however, including private equity, both large and mid-market, and he has played a key role in some of the team’s most significant mandates. He is also active in carried interest and co-investment matters. His clients include GPs and investors, as well as funds-of-funds houses. MANDATES: • A leading Asian based financial institution on the establishment and $4 billion plus final closing of a European infrastructure fund

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lawdragon insights [ WARREN ALLAN ] PARTNER – LONDON “A good combination of good legal

itself. Her expertise stretches across private equity, venture capital and infrastructure funds, as well as co-investment and other incentive arrangements, spin-outs and private

advice, commercial intelligence, and a

equity management structures. She has acted for private

good negotiating style.”

equity houses and fund managers, as well as investors.

Warren Allan has a broad-based corporate ﬁnance practice, covering private fund formation,

[ SIMON WITNEY ] CONSULTANT – LONDON

secondary transactions and leveraged buyouts. He is

A leading voice in regulatory

popular among clients for his “patient, thoughtful and

discourse.

considered style,” which means he is “unruffled in difficult negotiations” – a particular draw in complex negotiations. MANDATES: • Lloyds Banking Group in connection with the secondary sale of a portfolio of private equity related investments to a fund financed by Coller International Partners VI • Bowmark Capital and Risk Capital Partners in establishing their respective buyout funds • Core Capital LLP in establishing a fund to acquire a portfolio of securities in UK private companies [ JOSYANE GOLD ] CONSULTANT – LONDON A leading figure in building the firm’s fund formation group. Josyane Gold, now a consultant with the firm, has enjoyed longstanding prominence in the European funds market, and within the firm

London consultant Simon Witney is a private equity fund formation lawyer, who is well-regarded for his knowledge of regulatory issues, evidenced by his position as chair of the EVCA’s Tax, Legal and Regulatory Committee. He also chairs the BVCA’s Legal and Technical Committee. His industry-wide expertise and remit as a big-picture analyst of the profession is a unique role in fund practices globally. [ ELIZABETH JUDD ] CONSULTANT – LONDON Liz Judd is a former general counsel of STAR Capital Partners Ltd. Clients have found her to be “highly industrious – burning the candle at both ends” as well as “calm and very well-organised.” [ TAMASIN LITTLE ] PARTNER – LONDON “She really knows her stuﬀ, and she knows it in detail, so if you want an answer she can really give you an answer.” Financial markets lawyer Tamasin Little has earned the respect of the private funds market for her expertise in regulatory matters, not only among her clients, but among rivals too. Her client are eﬀ usive in their praise, with one

Tamasin lives and breathes it.” Her client base features private equity, hedge and other fund managers, in addition to brokers, banks, insurance companies, investment exchanges and other investment ﬁrms. MANDATES: • Lloyds Banking Group in connection with the secondary sale of a portfolio of private equity related investments to a fund ﬁnanced by Coller International Partners VI 48 / lawdragon

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PHOTO BY BJØRN HOVDAL/DREAMSTIME.COM

conﬁding that when it comes to complex regulatory matters, “some don’t necessarily know all the background, whereas

PRACTICE SPOTLIGHT INVESTORS AND FUNDRAISING

[ INSIGHTS ] BY CATHERINE MCGREGOR

King & Wood Mallesons SJ Berwin has one of the most long-established funds practices, working with a wide range of managers of different size and experience. Partner Ed Hall talks to Insights about current fundraising strategies – how managers utilize different strategies depending on whether they are oversubscribed or fighting to reach their target. FEBRUARY 2014

ED HALL KING & WOOD MALLESONS SJ BERWIN (LONDON) idea of what position you’re in, and then move from there. What everybody talks about, and it’s become a bit of a cliché, is momentum, and the question of how you get momentum. But managers need to understand what position they are in before they can work out what the best way is to get momentum. If you’re talking about successful strategies to get that momentum, then I think a lot of it relates to tapping the market before you start a formal fundraise, getting your investors warmed up, knowing who your investors are likely to be. Then when you actually go and send them the documents, and get them to focus properly on your fund,

Lawdragon: Firstly, given that fundraising has been a

and take proposals to their investment committees and

lot more challenging over the last few years, do you think

so on, the people who are doing the work, the investment

you could give me any thoughts, or just an overview, of

team, already know they want to invest, already know that

perhaps some of the more successful strategies that you’ve

they want it to happen.

seen used in the market?

Inevitably things do sometimes slow down. Ultimately

Ed Hall: I think the most important thing that we’ve

from the investor’s perspective, they’ve got a whole range

noticed recently is that there is just a huge variation in

of funds to look at. They may not have ranked them in

terms of the length of time it takes to fundraise for diﬀerent

order of how much they want to be in them, but ultimately

managers. In the boom times, pre-Lehman, it seemed to

they’re going to look at, “If this one is going to be raising

be almost anyone could raise a fund. Some people raised

extremely quickly, and everybody wants in, and it’s going

more than others, but it took a similar amount of time,

to be diﬃcult to get the commitment I want in it, then I’m

and the process was fairly similar.

going to go hell for leather to make sure I’m in that fund,

Now there are some fund managers who are raising

and that’s what I’m going to focus on.”

extremely quickly, there’s literally only a couple of months

LD: Are particular strategies better suited to diﬀerent

from sending out a PPM and raising a multi-billion dollar

types of funds, or is it pretty general, in terms of just try-

fund, and other people who are taking a number of years

ing to generate momentum and getting investors aware?

to raise much smaller amounts, and often much less than they wanted to raise.

EH: I think it’s probably more about diﬀerent types of investors than diﬀerent types of funds, because investors

Although people talk about a bifurcated market, there

behave very diﬀerently. A large U.S. pension fund that has

are all sorts of positions in-between. There are people

got billions to invest across the world, and is potentially

who are reaching their cap but it’s taking them 12 to 18

putting very large commitments into funds, has a very

months, and there are people who aren’t reaching their

diﬀerent process and a very diﬀerent way of working to a

cap but are still having what they would call a successful

small European family oﬃce.

fundraise. I think the way that you go to market with your

As a manager, you need to think for each of your diﬀerent

fund is going to be diﬀerent depending on where you are

investors, “What do they need to do to invest in my fund,

in that spectrum.

and how am I going to get them there in the timeframe I

LD: So what are some of the key factors?

want to get them there?”

EH: One of the key things, ﬁrst of all, is just working out

So the number of times you try to meet with them,

what your fundraising is likely to look like. Try and have an

whether or not you try and get it all done in one go or

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lawdragon insights

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PRACTICE SPOTLIGHT INVESTORS AND FUNDRAISING

whether it’s lots and lots of iterative meetings, I think

They may have had one or two very senior people run-

ultimately depends on the type of investor rather than

ning the fund for 20 years, but now they’re stepping down,

the type of fund.

and are the people who are taking over going to be able

LD: Are there particular factors that are making certain

to recreate that track record? Or alternatively there may

funds much more successful with certain types of inves-

have been other particular issues that have come up within

tors? Has track record really become the most important

that fund in the past.

factor now?

Sometimes there’s one particular deal, or a piece of

EH: Yes, I think track record is probably ﬁrst and fore-

bad press, publicity or whatever. It doesn’t mean that an

most the most important thing that investors are looking

investor won’t invest, especially where the rest of the track

at. A lot of investors don’t want to miss out on the funds

record is good, but they will have questions they want

“THERE ARE VARIOUS THINGS THAT ME AN THAT FUNDS GO LOWER DOWN THE QUEUE AND LOSE MOMENT UM. THOSE ARE THINGS LIK E THE TE A M COMPOSITION, SUCCESSION PL ANNING, ALL OF THOSE T Y PES OF ISSUES A LOT OF FUNDS WHO ARE ONTO THEIR THIRD OR FOURTH FUND ARE NOW HAV ING TO DE AL WITH.” — ED H A L L that everybody else is interested in, and that largely comes down to track record.

PHOTO BY MICHAEL WHARLEY

So where there’s excitement about a fund you don’t want

answered on a particular area. LD: How important are environment or social governance (ESG) issues to investors now?

to be the investor who has to explain to their investment

EH: They are important, but it does depend on the inves-

committee, “Well, why aren’t we investing in this fund?”

tor. There are some investors for whom it’s absolutely key.

However, track record means diﬀerent things, for ex-

There are some investors for whom it’s an important area

ample, investors are interested in both the absolute returns

of their due diligence, they want to understand what the

that previous funds have achieved, but also the speed in

manager is doing and how they deal with it. Then there are

which there have made realizations. Investors are look-

other investors for whom it’s just a tick box, and there are

ing more carefully and more forensically at track record.

some investors that are probably not that bothered at all.

So some of them may say, “Well, look, we don’t care that

So there are diﬀerent degrees, but it’s deﬁnitely becoming

you’ve got 2 to 3 times overall return. Actually, it’s taken

a larger part of the process. Actually, due diligence as a

you 15 years to get the money back, and we would have

whole is becoming a major additional part of the process,

been better oﬀ putting money in diﬀerent funds.” Investors

on ESG, but also all sorts of other things about the way the

are also forensically examining track records, looking at

manager is set up and how it works. They’re much more

the extent to which the returns are due to one or two “big

interested in how the team are remunerated, and other

wins” and whether the successes are repeatable.

sorts of policies and processes.

So people are looking more carefully at returns, and ul-

One of the things you need to be prepared for, fundrais-

timately track record is probably the most important thing.

ing now as compared to four or ﬁve years ago, is just the

LD: And what about on the downside?

extra level of resource you’re going to need to put into

EH: Well, on the negative side, there are various things

answering investors’ questionnaires and dealing with due

that mean that funds go lower down the queue, so to speak,

diligence processes. They will want to come and meet team

and lose momentum. Those are things like the team com-

members. They will want to come and sit down and talk

position, succession planning, all of those types of issues

to the CFO and understand how they deal with diﬀerent

a lot of funds who are onto their third or fourth fund are

situations. There’s just much more hands-on diligence

now having to deal with.

going on in fundraising now than there used to be.

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LD: Yes. Much less just “Here’s my money go and invest

love the work. They wanted to invest in it, and actually

it!” You mentioned that sometimes there’s this great mo-

they thought the opportunities there were great, because

mentum, or a lot of buzz in the market about particular

although there was negativity about the region in the press,

funds. Is there any common denominator or can it be a

they thought, “Now is the opportunity to be investing. This

variety of factors?

is a stellar team. We should be in there now.”

EH: It’s often also the strategy, and diﬀerent strategies

The problem was it would get all the way up to the in-

are more attractive at diﬀerent times. There was a long

vestment committee, and the investment committee, who

time immediately after Lehman’s failure, for a couple of

didn’t know the team, didn’t know the fund, were just

years, where for whatever reason the infrastructure fund

looking at the piece of paper saying, “Are you joking? You

market was pretty slow, and funds were really struggling

want us to invest there?” Because all they necessarily saw

to get momentum, just because people weren’t that inter-

was Fox TV in the States, and it says, “Europe’s a basket

ested in investing in infrastructure. But in the last couple

case. Don’t go near it.”

of years that’s turned around, and we’ve been acting on

One of the diﬃculties is that within any investor orga-

some very large infrastructure funds that have raised

nization there’s a lot of politics. The people who want to

pretty quickly. So things change.

invest, and know the team, and work with the team on a

Europe is a complicated one for a lot of U.S. investors.

day-to-day basis, aren’t the people generally who are ulti-

Some U.S. investors have been put oﬀ from investing in

mately making the decision whether to invest, especially

Europe due to the Euro crisis. Others are very excited about

in the larger organizations.

Europe. If there’s a distressed play to it they think, “Lots

LD: That’s interesting. Obviously King & Wood Malle-

of opportunity”, but not necessarily in terms of things like

sons SJ Berwin has had a long history of advising ﬁrst-

European venture or European growth.

time managers. Any thoughts on how someone who is

Strategy is important, and I think one of the things a lot

maybe a newer manager might utilize fundraising strat-

of funds are ﬁnding quite diﬃcult is that they may have

egies in this market where, as you said, track record is

had successful funds over a number of vintages. They have

so vital?

not done anything wrong, but just now their strategy isn’t

EH: I suppose one thing to say about ﬁrst-time manag-

the one that investors are all falling over to invest in, and

ers is that there’s a huge variation in what people mean by

that’s causing problems.

ﬁrst-time manager. You’ve got everything from literally

LD: Yes, is the better thing to stay with what you know,

a ﬁrst-time manager, somebody who has had lots of deal

and do well, or go with whatever happens to be the ﬂavor of

experience somewhere else, and is going oﬀ by themselves

the month? But given private equity is such a long strategy

to start up a completely new fund, through to an entire

you don’t know if it will be by the time you ﬁnish.

team spinning out of a bank, or out of another private-

EH: A year or so ago we were acting on a pretty large Southern European fund, and it was diﬃcult, because a lot

equity house, which is really already an organized unit with a pretty clear track record.

of the U.S. investors, who have been in previous vintages

I think the issues they face are often exactly the same

in the fund, wanted to be in it. They love the team. They

ones as any other fund in the market. It’s about getting to

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lawdragon insights

PRACTICE SPOTLIGHT INVESTORS AND FUNDRAISING

the investors, spending time with them, explaining why

ones. I think they just need to think very carefully about

your proposition is exciting and diﬀerent, and getting

what their track record is, including whether they can use

that momentum.

it (because often there’s intellectual property issues over

The extra diﬃculties they have got is that - especially

those track records), and how they can justify the fact

if they haven’t been involved in raising a fund themselves

that it’s their track record rather than somebody else’s

before - they may not have the direct investor relation-

track record.

ships. They may have been a very important part of the

LD: Are diﬀerent approaches to fundraising changing

deal team, or the whole of the deal team, but they haven’t

how the limited partner agreements are structured, or are

necessarily had the investor relationships. So they need

they still pretty much the same? There’s obviously been a

to build those up. Also track record is really diﬃcult for

proliferation in side letters but have you seen any moves

them, because trying to put together a clear and a fair

towards changing how the funds are structured?

and a cohesive track record that they can rely on, and that investors can rely on, is diﬃcult.

EH: The terms are being aﬀected by the fundraising. It’s natural. For a long time what we’ve seen is the funds

For example you might have a spin-out of the whole of

that are ﬁnding it harder to raise are going to be more

the European team of an international organization and

willing to give investors provisions that they want in the

they might have sourced all of the deals, and they might

agreement, where previously they might have pushed back,

have managed all the deals, and they might have realized

and managers who are ﬁnding it easy to raise might push

all the deals, and they might want to say, “Well, look, that’s

back. There’s always something in the LPA that investors

our track record.” And that’s probably fair enough but their

can look to improve, or make more certain for themselves,

positions may be more nuanced.

or provide them with extra protection, or whatever else.

LD: How might an investor look at ﬁrst-time fundraisers’ track records?

There’s always another investor protection you can put into the agreement.

EH: Well, investors are going to ask, “How do we know

Obviously if you want to raise money then it’s better to

that it was you making the decisions as to what to invest

give terms that you may not be comfortable with but have

into? How do we know that actually you sourced all of

the money to invest, than to not have the money at all,

those deals, and it wasn’t the case that there was just a

ultimately. Other people who can raise the money without

huge pipeline fed to you by the team in the States, or Asia,

having to give these extra provisions will push back.

or wherever else?”

I think the one change we’ve seen in the last year or so,

All of those types of questions managers need to be

though, which is interesting, is the funds that are rais-

prepared for, and you need to be able to back up that track

ing very, very quickly actually looking to take it one step

record, but equally just try to present it in as clear a way as

further, and looking to actually go out to the market with

possible to investors, so that they’re comfortable with it.

better terms, maybe, than they had in the previous fund.

I think there’s no reason why ﬁrst-time funds coming

LD: Better terms for the managers?

into the market shouldn’t be able to raise, and actually

EH: For the manager. For example a lot of them might

we’ve been involved in quite a lot of pretty successful

have been raising their previous fund around 2007-2008,

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lawdragon insights a time when things were pretty bad, when they were the

exponentially multiplies. So some side letters have turned

ones giving everything up. Historically people have tended

into 25- to 30-page-long documents. We probably spend

to go out with the same LPA that they had last time around,

twice as much time negotiating and drafting side letters

and see how much they can push back on. And, I think

as we do dealing with the LPA.

now some of them are looking and saying, “Well, actually,

LD: Finally, how has the increase in various regulations,

I gave things I didn’t want to give last time round. I’m go-

obviously many here in Europe, and then lots coming from

ing to try and take those back and see if I can hold onto

the U.S., changed the landscape for successful fundraising?

them.” And, if they’re in that much demand, then often

EH: It’s changed the landscape of investors, and it’s

they’re succeeding.

changed the amount that diﬀerent investors have to spend

It’s interesting, because it’s not something I think in-

in private equity. That’s probably the most fundamental

vestors have had to face. They’ve been used to pushing

change for a lot of GPs. Historically, their ﬁrst step would

back, and being given clauses that they haven’t been given

be to go back and look at their existing LPs, and work out

previously, and I think it’s quite an interesting dynamic

how much of the fund you can raise just with them alone,

at the moment.

and then look to other relationships. But managers are

I think the whole concept of what is market standard is

ﬁnding that some LPs just aren’t really investing in private

starting to go out of the window, because there’s a whole

equity anymore. Often that’s due to regulation, things

range of market standards. There’s a market standard for

like the Volcker Rule, that’s stopped a lot of banks from

a fund which is massively in demand, which is going to be

investing oﬀ their own balance sheet.

oversubscribed, which is going to raise in three months

There’s also the ﬂipside. In a lot of the Asian markets,

time, versus a fund that’s going to reach its cap, so can

regulation is reducing, and allowing people who previously

push back, versus a fund that’s going to only raise half of

couldn’t invest outside their own home jurisdictions to

what it wanted to raise.

invest internationally, to invest into private equity.

So I don’t think you can say, “Fund A has given us this,

So the whole landscape of investors is changing. There

therefore you should.” That used to be deemed an accept-

are some pools of capital that are shrinking and there are

able negotiation tactic, but I think that’s changing because

a number that are growing quite signiﬁcantly. So I think

of the variation in fundraise experiences.

that’s an important eﬀect that regulation is having.

LD: Yes. Let’s talk a bit more about some of those variations.

In Europe there’s also the fact that the Alternative Investment Fund Manager’s Directive, in particular, is just

EH: LPAs are varying a lot more than they used to. The

making the fundraising process more diﬃcult. You either

key economic terms aren’t changing signiﬁcantly. The 8%

have to comply with the AIFMD - and that’s a long process

hurdle and the 20% carry, and things like that, have been

with lots of hurdles to get yourself through - or you don’t

pretty static. The management fee has moved a bit. One

comply with it and you have to deal with each individual

strategy - which I think has been unsuccessful - is people

country’s marketing rules. Whichever way you go, the

looking to reduce their management fee too much. Investors

marketing process is more cumbersome.

want to invest in a successful product. They don’t necessarily want to invest in something that’s under-priced.

That’s not just true in Europe. For example, a lot of the Middle Eastern jurisdictions are tightening up their own

On side letters, again, I think that goes hand in hand

marketing placement rules. There are lots of jurisdictions

with the extra due diligence. Just 10 years ago some funds

where it’s becoming more complicated, lots more places

tried to say, “We won’t have side letters.” They tended to

where you have to do ﬁlings before marketing in a jurisdic-

still have them, but they tended to be one or two pages, with

tion. It used to just really be that there were a handful of

very special clauses for that particular investor, because

complicated territories. Now that’s turning into a longer

they had a particular requirement.

list. This changing regulatory and investor landscape ﬁts

What’s happened is that investors have seen side letters

with our ﬁrm’s coverage across the key EU jurisdictions,

that are given to other investors on other funds, they’ve

the Middle East, China and Asia Paciﬁc. Our experience

built up their own standard side letter that they want,

is that these are the regions where expert legal, regula-

and each time they see a clause that they like they add

tory and tax advice is most needed and most valuable,

it to their standard side letter, and the whole thing just

and hardest to get.

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KIRKLAND & ELLIS

A favorite for sophisticated mandates in both the high-end and mid-market

Summary of ﬁrm structure:

Ancillary practice support in key locations:

Kirkland & Ellis is a 1,600-attorney partnership with a 100-year history of working with clients around the world in complex litigation, corporate and tax, intellectual property, restructuring and counselling matters.

Tax: New York – 4 partners (Steven Clemens, Patrick Gallagher, David Grenker, Benjamin Panter), 1 associate

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation:

Chicago – 3 partners (Daniel Meehan, Don Rocap, William Welke)

Chicago: 17 partners (Laura Bader, Michael Belsley, Nicholas Di Crescenzo, Bruce Ettelson, Kevin Evanich, Margaret ‘Meg’ Gibson, Chris Kallos, Jeffrey Kaplan, Sarah Kirson, Nancy Kowalczyk, Jack Levin, John Muno, Nadia Murad, Joshua O’Donnell, A. Kelly Ryan, Karen Sodke, Jennifer Wilson), 1 of counsel (Warren Goodworth), 11 associates London: 7 partners (Stephanie Biggs, Alexandra Conroy, Matthew Dean, Kate Downey, John MacGarty, Mark Mifsud, Richard Watkins), 8 associates New York: 9 partners (Robert Blaustein, William Brashares, John Budetti, Elizabeth Gottschalk, Srinivas Kaushik, John O’Neil, Joshua Soszynski, Robert Sutton, Andrew Wright), 10 associates Hong Kong: 3 partners (Christopher Braunack, Justin Dolling, Carol Liu), 2 associates San Francisco: 2 partners (Karin Orsic, Justin Solomon), 3 associates Levels of associates: Information not provided by ﬁrm Diversity statistics: GENDER Partners

13 out of 39 are women = 34%

Associates

7 out of 34 are women = 20%

TOTAL

20 out of 73 are women = 27%

MINORITY Partners

2 out of 39 = 5%

Associates

8 out of 34 = 23%

TOTAL

10 out of 73 = 14%

London – 2 partners (Anna Fallowﬁeld, Ian Taplin)

ERISA: Chicago – 2 partners (Laura Bader, Josh Westerholm) Key relationship clients: Blue Bay Asset Management, Golden Gate Opportunity Fund, Macquarie Capital Funds, Marlin Equity, Peak Rock Capital, Starwood Capital Group, Summit Partners, Thoma Bravo, Vitruvian Partners Recent publishable mandates: 2013: Represented Vitruvian Partners in its latest fund Vitruvian Investment Partnership II, which closed at £1 billion 2012: Represented Bank of America in the sale of its Asian private equity investment portfolio to a consortium of four private equity firms 2012 Represented Thoma Bravo in Thoma Bravo Fund X, which closed at $1.25 billion 2012: Represented Golden Gate Capital Opportunity Fund on the formation of a flagship fund with both private equity and hedge fund characteristics Turnover rate – notable departures and hires: 2014: Partner Albert Cho left for Weil, Gotshal & Manges 2013: Alexandra Conroy promoted to partner in the London office Asset classes worked on: Buyout, distressed debt/special situations, fund-offunds, Infrastructure, mezzanine, real estate, secondaries, venture/growth capital

lawdragon insights irkland & Ellis’ commitment to this sector is clear. Since 1995 it has formed around

[ MICHAEL BELSLEY ] PARTNER – CHICAGO

680 funds, raising an aggregate of over

Boasts signiﬁcant expertise in secondaries

$460 billion. Such longevity aﬀords the group undisputed expertise and an over-

view of the market that ensures its place is secure among the counsel of choice for big-hitting fund sponsors, as well

as for the middle-market. Such sponsors go to the ﬁrm for sophisticated, specialized work for which the team’s forthright approach is highly eﬀective. Its 80-attorney-strong group means it can boast considerable heft behind its leading names, which are most densely clustered in Chicago and New York. The team’s global stature is nonetheless imposing, with the

firm fielding a substantial London offering, alongside depth in Hong Kong. Such a spread highlights the group’s continued drive for a seamless, globally integrated product that appeals to general counsel. The team is truly full-service, offering sponsors access to its full complement of fund strategies –buyout, venture, hedge, mezzanine, distressed debt, real estate, secondary, hybrid or funds-of-funds. The group also advises management companies of sponsors on accompanying firm management, investments, investor relations, regulatory and tax issues, alongside a busy investor-side practice and work for secondary fund sponsors. In a conspicuous recent mandate, the team acted for Vitruvian Partners in

Michael Belsley has a broad-based deal practice, which sits alongside his work for both sponsors and investors in the formation, restructuring and governance of private equity funds. Secondaries are a focus of his. He has signiﬁcant involvement in investments in, and secondary market sales, of private equity fund interests, and he acts for buyers, sellers and others in secondary market activities. MANDATES • Morgan Stanley Alternative Investment Partners, in partnership with Ferrer Freeman & Company, LLC in connection with the restructuring of FFC Partners III, LP (Fund III), a $400 million 2004 vintage fund [ CHRIS KALLOS ] PARTNER – CHICAGO Chris Kallos is a long-standing and senior ﬁgure in the Kirkland funds group. His private fund formation practice has encompassed funds such as buyout, venture, growth equity, debt, technology, secondary, real estate and more, and he also advises sponsors in operational, transactional, litigation and estate planning issues. Comvest Partners, Madison Dearborn Partners and Adams Street Partners have featured among his clients. In addition, he is active

closing its $1.7 billion Vitruvian Investment Partnership II.

on the investor-side for some limited partners.

[ BRUCE ETTELSON ] PARTNER – CHICAGO

MANDATES

The highly touted group leader

• Arsenal Capital Partners in its $875 million ﬁnal closing of Arsenal Capital Fund III, LP

Bruce Ettelson’s main game is in acting for private

• Windjammer Capital Investors, in connection with its

equity funds and their management companies in fund

completed fundraising for $726 million Windjammer

formation and structuring, including those associated

Senior Equity Fund IV

with commercial and investment banks, as well as advising buyers, sellers, management teams and sponsors on investing in the secondary market. His impressive client roster includes the likes of Golden Gate Capital, AEA, and Vestar Capital Partners. He has also advised investors in private equity funds. MANDATES • Peak Rock Capital LLC in the $700 million ﬁnal closing of Peak Rock Capital Fund LP and its parallel fun • Thoma Bravo, LLC, in its closing of $1.25 billion

[ JOHN MUNO ] PARTNER – CHICAGO John Muno’s expertise is in forming, structuring and operating private equity funds and management companies for sponsors. Leveraged buyouts, secondary and distressed investments all fall within the gamut of his experience, as does general corporate counseling, deal-structuring and regulatory compliance advice. His clients include CIVC Partners, Thompson Street Capital Partners and LaSalle Capital Group.

Thoma Bravo Fund

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MANDATES • Peak Rock Capital LLC in the ﬁnal closing of $700 million Peak Rock Capital Fund LP and its parallel fund, • Thoma Bravo, LLC, in its closing of Thoma Bravo Fund X, at $1.25 billion [ KAREN SODKE ] PARTNER – CHICAGO Karen Sodke comes from a broad-based corporate background, but now concentrates fully on fund formation, acting for a slew of sponsors in buyout, venture strategies and fund-of-funds. In the latter space, she also represents fund-of-funds as limited partners in investing in third

its second private equity fund at $950 million • BlueBay Asset Management LLP, in connection with the ﬁnal closing of the $1.3 billion BlueBay Direct Lending Fund [ KATE DOWNEY ] PARTNER – LONDON “Diligent and thorough.” Funds counsel also have a lot of time for partner Kate Downey. She is acclaimed for her commerciality in structuring domestic and international private funds, carried interest and co-investment matters. Her practice has also included private equity transactions and restructuring

party funds.

management houses.

[ JOHN O’NEIL ] PARTNER – NEW YORK

MANDATES

John O’Neill is a popular choice for domestic and international sponsors in a range of private fund strategies such as buyout, energy, defense, growth capital, distressed debt, mezzanine, technology and others, as well as in operational issues and extraordinary events. He also founded Kirkland & Ellis’s private funds crisis management group, supporting clients through crisis situations. MANDATES • Water Street Healthcare Partners in closing a $750 million buyout fund [ MARK MIFSUD ] PARTNER – LONDON “Terrific.” Across the pond in the London office, Mark Mifsud has made a splash among funds counsel, who find him “very

• BlueBay Asset Management LLP on the final closing of the BlueBay Direct Lending Fund, at over $1.3 billion of commitments • iCON Infrastructure in the fi nal closing of iCON Infrastructure Partners II, LP • Procuritas in the final close of $334 million Procuritas Capital Investors V, LP [ RICHARD WATKINS ] PARTNER – LONDON Private fund structuring, carried interest, co-investment and other incentive schemes are the key areas for Richard Watkins, although he also strays into the transactional field, in matters such as mergers, secondaries and spin-outs. He co-led the team closing Vitruvian Investment Partnership II, which raised total commitments of $1.7 billion. MANDATES

energetic and very smart,” but he’s also impressed rival

• Blue Water Energy LLP, an energy investment ﬁrm,

lawyers in private practice. The formation of private equity,

in the closing of the $861 million Blue Water Energy

real estate, debt and infrastructure funds is his main focus,

Fund I LP

and this extends to secondaries, carried interest arrangements, co-investment plans and incentive schemes, as well as counseling work on behalf of investment managers and chosen limited partners. MANDATES • iCON Infrastructure in closing iCON Infrastructure Partners II, LP • Danske Private Equity in the closing of $1.1 billion European and U.S. fund of funds Danske PEP V • L Capital Asia, the Asian private equity arm of LVMH

[ JOHN MACGARTY ] PARTNER – LONDON John MacGarty acts for sponsors in establishing and structuring funds, carried interest and co-investment schemes and advisory and management entities, alongside assisting in corporate ﬁnance matters. MANDATES • BlueBay Asset Management LLP, in its ﬁnal closing of the $1.1 billion BlueBay Direct Lending Fund

Moët Hennessy Louis Vuitton S.A. (LVMH), in closing

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lawdragon insights

In the fund formation arena, Stephanie Biggs’ expertise falls within the regulatory and compliance sphere, of late, spanning the UK Bribery Act 2010, AIFMD and the 2010 US Private Fund Investment Advisers Registration Act in particular. She is also experienced in corporate and partnership law. [ LISA CAWLEY ] PARTNER – LONDON Partner Lisa Cawley has a broad-based financial services regulation practice, both in and outside of the private funds sphere. In the latter area she has advised in relation to the regulatory aspects of funds structuring, especially pertaining to pan-European and global private equity funds, and in the marketing of funds. She has also advised clients in connection with AIFMD and the US Private Fund Investment Advisers Registration Act. [ JUSTIN DOLLING ] PARTNER – HONG KONG At the helm of Kirkland’s private funds practice in Asia is Justin Dolling, an Australian who moved from London where he had been based for over a decade - to Hong Kong, to grow the group’s offering in the region. His focus is fund formation of private equity funds, carried interest and co-investment arrangements and secondary transactions, as well as transactions relating to restructuring, leveraging and refinancing of funds, and buyouts and spinouts. His clients have included Terra Firma, China Investment Corporation and Pacific Road Private Equity, amongst others. 58 / lawdragon

MANDATES • L Capital Asia in closing its second private equity fund, L Capital Asia 2, at $950 million • Saratoga Capital in the formation of Saratoga III • Actera Partners in its formation of its $1 billion Actera II fund [ CHRISTOPHER BRAUNACK ] PARTNER – HONG KONG Having relocated from London, Christopher Braunack acts for global, regional and local sponsors in fund formation matters. His clients have included China Investment Corporation, Actis and Saratoga Capital, and his practice encompasses private equity, real estate and infrastructure, as well as secondary transactions, carried interest and co-investment matters. MANDATES • L Capital Asia in the closing of its $950 million L Capital Asia 2 fund • Vitruvian Partners in connection with the closing of Vitruvian Investment Partnership II [ CAROL LIU ] PARTNER – HONG KONG Native mandarin speaker Carol Liu is dual-qualiﬁed in the U.S. and the China. She is based in Hong Kong, working for Asia regional and global sponsors in private fund formation. Her skillset ranges across buyout, venture, infrastructure, real estate, debt and secondary funds, as well as acting for institutional investors and funds-offunds, purchase and sale of limited partner interests in the secondary market and RMB funds. www.lawdragon.com

PHOTO BY WEI-CHUAN LIU/DREAMSTIME.COM

[ STEPHANIE BIGGS ] PARTNER – LONDON

LINKLATERS

“Have a lot of folks on the international side.”

Summary of ﬁrm structure:

Ancillary practice support in key locations:

Linklaters is a multinational law firm with its headquarters in London. Founded in 1838, it is a member of the Magic Circle of leading British law firms. It is a partnership with 29 offices in 20 countries across the world, covering Europe, the Americas, Asia Pacific, the Middle East and Africa. It has 4,500 total staff, with around 2,700 qualified lawyers and 460 partners.

Tax: Paris – 1 partner (Edouard Chapellier)

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: New York: 3 partners (Lorna Bowen, Scott Bowie, Justin Storms), 2 associates (Andrew Ford, Pramod Thummala)

London – 1 partner (Elizabeth Conway) Munich – 1 partner (Dr Thomas Elser) New York – 1 counsel (Francisco Duque) ERISA: New York – 1 associate Regulatory: London – 1 partner (Peter Bevan) Key relationship clients: Cinven, ProLogis, VTB Capital, InfraRed, State Street, Perella Weinberg Recent publishable mandates:

London: 3 partners (Jonathan de Lance-Holmes, Matthew Keogh, Edward Smith)

2012: Advised Cinven on raising its $5 billion-plus panEuropean private equity fund

Frankfurt: 2 partners (Alexander Vogt, Markus Wollenhaupt)

2012: Advised Perella Weinberg Real Estate Fund II, which had a target of $2 billion

Luxembourg: 1 counsel (Rodrigo Delcourt)

2012: Acted for new European credit asset management house Goldbridge Capital Partners on the formation and structuring of Goldbridge Alternative Investment Funds and the launch of two distinct subfunds of the fund

Tokyo: 1 counsel (Eriko Sakata) Levels of associates: Information not provided by ﬁrm Diversity statistics: GENDER Partners

1 out of 8 are women = 12.5

TOTAL

1 out 11 are women = 9%

MINORITY Partners

0 out of 8 = 0%

TOTAL

1 out of 11 = 9%

Turnover rate – notable departures and hires: 2012: Stephen Culhane left to join Kaye Scholer Asset classes worked on: Buyouts, fund-of-funds, real estate, venture/growth capital

lawdragon insights he global spread of Linklaters’ private funds

Jonathan de Lance-Holmes heads London’s investment

oﬀering wins deserved recognition from

management operation, though for a time in the mid-1990s

funds sponsors, who can draw on the team’s

he was based in Moscow. His expertise in UK private equity

coverage in London, New York, Frankfurt,

is noted by the market, and he can be found on international

Paris, Luxembourg and Tokyo. The invest-

matters, too. In addition to his involvement in fund formation,

ment management practice has a ﬁrm command of real

he advises on regulatory matters, as well as M&A, placings

estate funds, and in the private equity space the group

and syndication of investments and establishment of venture

applies its skills to formation, fundraising, carried interest

capital and principal ﬁnance operations.

and other employee incentives, ownership arrangements, spin-offs and investor negotiations. A key client is Cinven, who the team advised on raising its $5 billion-plus panEuropean private equity fund. [ SCOTT BOWIE ] PARTNER – NEW YORK “He knows what that market is. Very good at knowing what the plumbing is out there, what the latest and greatest is.” Scott Bowie leads the firm’s global investment management group from New York, and enjoys a stellar name in the private funds world. General counsel dubbed him “really great at relaying information to a client in a down to earth, plain-English manner.” They praised him as “very hardworking as well, very into writing the right way,” confiding that he’s “fun to work with” to boot. [ LORNA BOWEN ] PARTNER – NEW YORK Originally hailing from Ireland, Lorna Bowen has been resident in New York for more than a decade. Her practice covers a range of private funds, including private equity, hedge and funds of funds on structuring and operation issues, including regulatory and compliance matters. Coinvestment, seeding deals, secondary sales, and fund and management company formations are also areas of involvement for Bowen, and her client base also features institutional investors. [ JUSTIN STORMS ] PARTNER – NEW YORK Justin Storms made partner last year. He enjoys a broadbased funds practice, which takes in private fund structuring and co-investment matters, managed accounts, governance and compensation advice, as well as acting for institutional investors. [ JONATHAN DE LANCE-HOLMES ] PARTNER – LONDON

MANDATES • Cinven, on raising its $5 billion-plus pan-European private equity fund • State Street Bank in connection with an AIFMD project [ EDWARD SMITH ] PARTNER – LONDON Following a stint in Linklaters’ Hong Kong office between 2009 and 2012, during which he led the firm’s Asia funds group, Edward Smith is back in London. His experience in the Asia market has included advising sponsors in connection with establishing onshore RMB-denominated funds. He is focused on the formation and marketing of private equity, real estate and infrastructure funds, including carried interest, co-investment and other asset management arrangements. MANDATES • UBS AG and Gemdale Corporation in connection with forming a jointly managed fund investing into China-based real estate development • CIC on investing into Apax [ MATTHEW KEOGH ] PARTNER – LONDON Matthew Keogh came to Linklaters London from Sydney in 2007 and became a partner in 2012. Private equity, hedge, infrastructure and real estate funds are his areas of emphasis, on behalf of both sponsors and investors. He also represents sponsors and banks in fund equity and debt financing, as well as M&A associated with investment operations. MANDATES • Cinven in restructuring and raising its fifth fund • Alcentra Ltd on forming the Alcentra Special Situations Fund • Scottish Widows and Cushman Wakefield in connection with the joint venture fundraising of a pan-European urban retail fund

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MACFARLANES

An independent firm with a significant funds pedigree in Europe Summary of firm structure:

Key relationship clients:

Macfarlanes is an international law ﬁrm based in London and is a member of the “silver circle” of UK law ﬁrms. It is a partnership and was founded in 1875 and has around 500 employees, including just over 300 lawyers.

Dunedin, Haymarket Financial, IK Investment Partners, Legal & General Investment Management, Lyceum Capital, Montagu Private Equity, Metric Capital, 17Capital, Old Mutual, Partners Group and Observatory

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: London: 5 partners (Alex Amos, Bridget Barker, Tim Cornick, Stephen Robinson, Simon Thomas), 1 senior counsel (Alisa Chhoa) Levels of associates: Information not provided by ﬁrm Diversity statistics: GENDER Partners

1 out of 5 are women = 20%

MINORITY Partners

1 out of 5 = 20%

Ancillary practice support in key locations: Regulatory: London – 1 partner (David Berman) Tax: London – 4 partners (Damien Crossley, Mark Baldwin, Ashley Greenbank and Andrew Loan), 1 senior counsel (Dan Pipe)

Recent publishable mandates: 2013: Acted on behalf of new client IK Investment Partners on fundraising for its seventh private equity fund 2013: Advised 17Capital on its second fund, which successfully closed at $280 million 2013: Assisted Lyceum Capital with the fundraising for its third fund, achieving $530 million at closing 2013: Acted for Alpha Real Capital on the conversion of an offshore real estate fund into an onshore property authorised investment fund (PAIF) Turnover rate – notable departures and hires: 2013: Simon Thomas joined as partner from Akin Gump Asset classes worked on: Buyout, distressed debt/special situations, hedge, infrastructure, mezzanine, real estate, secondaries, venture/growth capital, private equity, regulated and listed funds

lawdragon insights he practice at Macfarlanes boasts an impressive track record in the European funds market, and the ﬁrm’s independence in a market awash with international players is a signiﬁcant draw. Market sources note that

the team’s “individuality combined with strong expertise

makes it a natural partner for many of the remaining

U.S. funds practices without a London presence.” Fund managers cite the team’s expertise in coordinating a wide range of international mandates combined with “sophisticated fund structuring and expert tax guidance in what can be difficult waters for fund raising.” The fi rm’s strength in M&A has historically been a boon for its funds practice with healthy cross-pollination between deals and fund mandates from clients who want joined-up advice on both sides. The hire of partner Simon Thomas from Akin Gump Strauss Hauer & Feld bolstered the firm’s considerable funds offering and gave additional strength in the hedge fund asset class. In addition to its strength on the sponsor side, Macfarlanes also acts for a large number of investors and advises them on investing in many different types of private funds, including Partners Group, AlpInvest,

MANDATES • IK Investment Partners its seventh fund, the IK VII Fund, which closed in October 2013 with total commitments of about $2.3 billon • Lennox Investment Management on raising its second fund focused on prime residential properties, which held its first close in February 2013 with commitments of more than $70 million • 17Capital LLP on its second fund, focused on equity investments in European Private Equity opportunities worth over $283 million [ STEPHEN ROBINSON ] PARTNER – LONDON Extensive experience in funds and their regulation. Another leading personality at the firm, Robinson’s practice spans fund formation and advising funds on regulatory issues. Sources praise his ability to “effortlessly meld structuring and regulatory advice.” His fund formation experience covers traditional private equity style funds as well as hedge funds and listed vehicles. He has also advised on the conversion of a number of private equity and hedge funds to LLP status and the

Unigestion, and EIF, in addition to a number of sovereign

associated regulatory and compliance issues.

wealth funds.

MANDATES

Recent mandates include advising Haymarket Financial or Hayfin, a manager specializing in European debt opportunities, on raising its $1.9 billion special opportunities credit fund, which closed in October 2013. Leading the team were investment funds and financial services partner Alex Amos and tax partner Damien Crossley. [ BRIDGET BARKER ] PARTNER – LONDON “No-nonsense, well-rounded expertise” Bridget Barker heads up the investment funds practice at Macfarlanes. Market sources consider her to-the-point and well-versed in the entire gamut of developments, including the various regulatory issues affecting fund managers in Europe with AIFMD. Clients point to her “depth of experience” and ability to find “sensible workable solutions” as a key trait in the past years of more variable fortunes for funds raising.

• Lyceum Capital on raising their third fund, which closed with over $491 million in commitments • The establishment in 2012 of SEP IV by Scottish Equity Partners, one of the UK’s largest Venture Capital funds • Alchemy Partners on their $819 million Alchemy Special Opportunities Fund II in 2011 [ SIMON THOMAS ] PARTNER – LONDON “Adroit advice across asset classes” Simon Thomas, who joined the firm at the beginning of 2013 from the London office of Akin Gump, significantly bolsters its offering in the hedge funds sphere. However, his track record across the range of private funds leads clients to describe Thomas a having a “notable grasp of issues across asset classes.” In common with many of his colleagues, Thomas is also adept at advising managers on the tide of regulatory developments in the space. His practice is international, but he is well known for work for funds in developing markets such as Africa and the CIS.

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[ ALEX AMOS ] PARTNER – LONDON Alex Amos’ 2012 promotion to partnership brought a respectable vintage of experience in working as a solicitor with the funds team at the ﬁrm. MANDATES • Hayﬁn on raising its $1.9 billion special opportunities credit fund, which closed in October 2013 • Legal & General on the raising of its second UK Property Income Fund [ TIM CORNICK ] PARTNER - LONDON Tim Cornick’s work spans investment fund matters, regulatory issues as well as securities advice. He has particular expertise in open-ended funds, including the whole range of USCITs products, as well as closed end vehicles and private funds. Given the increasing regulatory environment for all fund types, Cornick’s expertise in interpreting FSA directives is a

PHOTO BY KRISZTIAN MIKLOSY/DREAMSTIME.COM

boon for the well rounded funds practice at Macfarlanes.

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O’MELVENY & MYERS They’ve really made a niche in China

Summary of firm structure: Founded more than 129 years ago, O’Melveny & Myers LLP is a partnership of 800 lawyers on three continents. With 16 offices in Asia, Europe and the United States, the firm offers a global perspective on business matters. Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: The firm has more than 25 people across its offices in its Investment Funds practice, led by John Daghlian in its London office Levels of associates: Information not provided by firm Diversity statistics: More than half of the lawyers in the Investment Funds practice are women and/or minorities Ancillary practice support in key locations: Tax: 20 attorneys Regulatory: 10 attorneys ERISA: 20 attorneys Key relationship clients: Avenue Capital, CDC Group plc, Coller Capital, Colony Capital, Development Partners International, GIC Private Limited, IFM Investors, Secured Capital Investment Management Co., Ltd. Recent publishable mandates:

PHOTO BY VLADITTO/DREAMSTIME.COM

2013: Represented Adelis Equity Partners in the raising of its maiden fund, Adelis Equity Partners Fund I (the Fund), an approximately US$564 million buyout fund focused on the Nordic lower middle market. This complicated, cross-border deal featuring a unique fund structuring culminated in the Fund achieving its ﬁnal closing in November 2013. The transaction was

reported in Private Equity News as the largest first-time fund raised in the Nordic region in the last decade 2013: Represented long-term client Coller Capital on the approximately US$1.6 billion acquisition by a fund financed by Coller International Partners VI (CIP VI) of a portfolio of private equity-related investments, as well as the transfer of approximately US$345 million of undrawn commitments, from Lloyds Banking Group plc. This transaction is believed to be the largest unsyndicated secondaries deal ever completed. Previously, O’Melveny advised Coller on its successful fund-raising for CIP VI. The fund raised US$5.5 billion, which makes it the second largest secondaries fundraising ever 2013: Advised Development Partners International LLP on the first closing of its second flagship private equity fund, African Development Partners II. The fund, which has a target size of US$500 million, held its first closing with US$219 million in limited partner commitments from a broad range of public and private sector institutional investors from a variety of jurisdictions 2013: Represented Secured Capital Investment Management Co., Ltd. (Secured Capital) with respect to its sixth fund focused primarily on investing in distressed real estate debt and other real estate-related investments located primarily in Japan with a secondary focus on other Asian countries. With US$1.45 billion in commitments, the fund exceeded its fundraising target by approximately US$500 million Turnover rate – notable departures and hires: 2013: Daniel Quinn promoted to partner in the London office Asset classes worked on: Buyout, credit opportunities/distressed debt, emerging markets, fund-of-funds, hedge funds, infrastructure, real estate, renewable energy, secondary/synthetic, special situations, spin outs, venture/ growth capital

lawdragon insights he funds group at O’Melveny & Myers is spread across the globe, unfurling from its origins in California, out to the East Coast (New York and Washington D.C.), over to London, and across to the Asia-Paciﬁc re-

gion, where the group fields a wealth of talent across offices in Beijing, Hong Kong, Shanghai, Singapore and Jakarta. Notwithstanding the 2011 addition of Tim Clark to the New York office, strengthening the U.S. offering, the greatest concentration is in London, where Solomon Wifa and John Daghlian are based. There, the team’s name is often linked with the private equity secondaries sector, thanks to its close relationship with Coller Capital, who retained the group in 2012 to act on structuring Coller International Partners VI – a fund which raised over $5.5 billion, and ranks among the largest secondaries fundraisings ever. O’Melveny has had a keen eye for emerging markets right from the group’s inception, and this has paid dividends, particularly in China, where its name is synonymous with structuring and operating RMB (Renminbi) funds. The firm worked on the first ever of such funds to be approved by the Ministry of Commerce, setting the pace for what would become an area of niche expertise for the group, and particularly for Beijing-based Larry Sussman. Although the group’s client base features a sizeable portion of general partners - particularly in the mid-market - the team also has a vibrant investor-side practice, consisting of institutional investors and funds-of-funds. Key names here include CDC Group plc, CenturyLink Investment Management and the Government of Singapore Investment Corporation. [ JOHN DAGHLIAN ] PARTNER – LONDON John Daghlian heads O’Melveny’s investment funds practice from London, and is a familiar face in private equity fund formation, where he has structured a range of funds, including LBO, venture capital, emerging market, country-specific and more. He is particularly well-known in secondaries fundraisings, and Coller Capital is a key client. Other representations have included ECM Equity Capital Management and Turkven, as well as a slew of major investors. He is also active in portfolio transactions, secondary and management buyouts, domestic flotations, spin-outs and M&A.

66 / lawdragon

MANDATES • Egeria in the closing of the Egeria Private Equity Fund IV at $780 million • Adelis Equity Partners in the closing of Adelis Equity Partners Fund I, a $564 million buyout fund • Coller Capital in connection with Coller International Partners VI (CIP VI), which raised more than $5.5 billion • ECM Equity Capital Management GmbH in the $317 million final closing of German Equity Partners IV [ SOLOMON WIFA ] PARTNER – LONDON Since 2010, Solomon Wifa has been the managing partner of O’Melveny’s London office – the youngest ever partner to have taken on that role - inheriting the mantle from John Daghlian. His work in emerging market fund formations has seen him involved in funds in sub-Saharan Africa, Turkey, India and Central and Eastern Europe. He was selected co-chair of the African Venture Capital Association’s Legal and Regulatory Committee. His workload has included venture capital, hedge, buyout and mezzanine, as well as private equity funds. He also takes on buyouts, secondary transactions, venture and development capital investments. MANDATES • Coller on purchasing a $1.67 billion private equity investment portfolio from Lloyds Banking Group • Greensphere Capital LLP in being awarded a fund manager role by the UK Government [ LARRY SUSSMAN ] PARTNER – BEIJING “Head and shoulders above anyone else for RMB funds.” Larry Sussman runs the firm’s Beijing office. He is steeped in the marketplace, having spent 14 years in the city, and co-founded the China Tax Forum, which is part of the American Chamber of Commerce in Beijing. He is particularly known for his pioneering work in the field of RMB funds, as well as having a strong profile for international tax structuring in China. He advises on private equity transactions involving Chinese portfolios, offshore funds concerning China, Chinese sponsors, QFIIs and QDIIs, public and private exits on and offshore, and cross-border transactions for Chinese enterprises.

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MANDATES • CITIC Private Equity Funds Management in the formation of its second fund, the CPEChina Fund, LP • News Corp. as it secured a 19.9 percent minority stake in Bona Film Group Limited • Primavera Capital on the establishment of its ﬁrst private equity fund focusing on investments in China [ DEAN COLLINS ] PARTNER – SINGAPORE Dean Collins is another experienced hand in Asia. After beginning his alternative investment career in 1995, he went in-house to work for emerging-markets focused private equity house Actis. In 2009 he arrived at O’Melveny & Myers and went straight to Singapore, where he has remained, acting for clients such as Axion, SilkRoad and KV Asia. He advises fund managers on the establishment of private equity, venture capital, infrastructure, hedge and real estate funds in Asia, as well

PHOTO BY DIETER VANDER VELPEN/FREEIMAGES.COM

as assisting those investing into Asia and elsewhere. Fund secondaries, co-investments and private equity transactions also occupy his time. MANDATES • KV Asia Capital on forming its ﬁrst fund, KV Asia Capital Fund 1

investment adviser M&A transactions and in regulatory and compliance matters. On the private equity side, his clients include buy-out, mezzanine, infrastructure and real estate funds. MANDATES • Coller Capital in connection with Coller International Partners VI (CIP VI), which raised over $5.5 billion • Turk Ventures Advisory Limited in connection with closing its third Turkish fund [ JAMES FORD ] PARTNER – HONG KONG Hong Kong-based partner highly regarded in the secondaries transaction space Former London-based partner James Ford is to be found nowadays in the firm’s Hong Kong office. There his practice includes a significant portion of secondaries investor transactions alongside fund formation – where he has advised European and emerging markets private equity groups, as well as limited partners - and a range of transactions in the private equity, venture capital, strategic investment, capital markets and M&A arenas. General counsel have found him “fantastic – really commercial and easy to work with.”

[ TIMOTHY CLARK ] PARTNER – NEW YORK Timothy Clark is based with the New York team, focusing on advising investors and funds in forming private equity, venture capital hedge funds, structuring

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lawdragon insights

68 / lawdragon

www.lawdragon.com

PRACTICE SPOTLIGHT EMERGING MARKETS

[ INSIGHTS ]

LARRY SUSSMAN O’MELVENY & MYERS (BEIJING)

BY CATHERINE MCGREGOR

Larry Sussman needs no introduction to the private fund community in China, where he has been based for 14 years. The managing partner of O’Melveny & Myers’ Beijing oﬃce is a tax expert and leading advisor on private equity transactions involving Chinese portfolios, oﬀshore funds concerning China or Chinese sponsors and onshore renminbi (RMB) funds. NOVEMBER 2013 Lawdragon: Talk me through the most popular ways at the moment for structuring RMB funds? Larry Sussman: The pure RMB fund is by far the largest category. I would say about 90 percent of funds structured in China fall into this category. The pure RMB with foreign GP (general partner) comes in second in terms of popularity.

While the partnership structure has finally taken hold, the investors will need to get familiar with the structure and any feeder vehicles. The specific partnership mechanics, and in particular a more complete form of limited partnership agreement (LPA), is still novel for certain investors in China. LD: What are the main differences in fund terms for RMB funds and their application versus offshore funds? LS: As mentioned, investment period and fund life are still divergent. The other issue that comes up is limited partner (LP) default and enforceability of LP commitments; many funds still look for upfront payments instead of drawdowns. In addition, waterfall and carried interest are still very different in China. These are both highly negotiated in China and never standardized. In offshore funds there is a norm of how these are drafted, the “whole fund” model,

The FIVCIE (Foreign-invested Venture Capital Invest-

“deal-by-deal” model, or “modiﬁed deal-by-deal”. Gener-

ment Enterprise) is really not used anymore. Dual-Struc-

ally as deals are realized, distributions either go through

ture or parallel is less frequently used, and is often hard

waterfall, and funds are paid out, or with the whole-fund

to deﬁne because there are sometimes loose relationships

model they go through future recognitions with a deferral

with other fund entities to co-invest in certain scenarios.

of distributions.

LD: Are you able to say why the ﬁ rst two are most popular?

In the middle you have a modiﬁed deal-by-deal where there’s a clawback of distributions, which has elements of

LS: Because they work! The eﬃcacies of the structures

both the waterfall and whole-fund model. Oﬀshore one of

are above and beyond the last two. The pure RMB has

those three is always going to be used. The Guidelines of

proven to have the highest chances of success in practice,

the Institutional Limited Partnership Association argue

in terms of deal execution, eﬃciency and competitiveness.

for the whole-fund model as being better for LPs; while

FIVCIEs had cumbersome foreign exchange, or Forex, conversion issues. In the same way with the dual

PHOTO BY ISTOCK.COM/TOMML

corporate entities among their partners.

GPs generally want deal-by-deal. LD: Explain to me, then, what is diﬀerent in China?

structure there wasn’t enough parity for domestic and

LS: In China it is oftentimes unique. You have waterfalls

oﬀshore investors in being able to co-invest in every deal

that do not follow these models as closely and sometimes

or co-invest successfully at all so it defeated the purpose

you even see faulty waterfall provisions.

of the structure. LD: Are fundraising or exit opportunities aﬀected at all by what type of structure a manager chooses? LS: Yes. Some local investors were more prone to a company or corporate structure, as they were investing before the partnership law was amended to allow for www.lawdragon.com

Lots of foreign-managed RMB funds would impose oﬀshore standards. The U.S. managers usually go with deal-by-deal structure and European managers are usually more comfortable with the whole fund structure. LD: Are you seeing any standards emerging with greater fund formation? lawdragon

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lawdragon insights LS: Yes. Gradually we’re seeing more normalization. Whole-fund is nowadays more common than deal-bydeal. The issues were that in the early days, lots of people didn’t know what they were doing – sometimes the lawyers drafting Limited Partnership Agreements for these early funds were using general company shareholder agreements and modifying them. The length of an LPA in an offshore fund is generally around 80 pages, for example, while you still have Chinese LPAs that are 20 pages. Some things are not addressed in these Chinese LPAs and many are very vague as fund partnership agreements. LD: What are some of the other differences? LS: With management fees, calculation bases are still negotiated but rates are basically the same. Regarding GP involvement, key-man terms are similar, but there are often requests for LP involvement still, even for non-anchor LPs. Establishment date and initial closing structural issues usually require that the entity is set up well in advance of the first closing, but this is just mechanical. Also, co-investment rules in China are very case-by-case. And for GP Removal, “fault” and “punishment” is still a big issue for LPs in China, and as a result GP removal discussions can become very confused. In China the notion of fault gets mixed in with financial return and Chinese LPs view that as fault – irrespective of how well the fund has been managed. You come across LPs who want to punish GPs for lack of returns; you can’t even have a discussion at that point! LD: Statistics show that the number of new RMB funds has dropped dramatically – why do you think that is? LS: It’s all relative. A couple of years back the num-

“A COUPLE OF Y E ARS BACK THE NU MBER OF FUNDS BEING FORMED WA S UNUSU ALLY HIGH – M AY BE OV ERHE ATED. NOW A NU MBER OF LOC AL GOV ERNMENTS AND THE CHINESE SECURITIES REGUL ATORY COMMISSION, THE C SRC , ARE TRY ING TO GE T THE GOV ERNMENT TO UNWIND FUNDS THAT WERE NOT PROPERLY SE T UP.”

ber of funds being formed was unusually high – maybe

— L A R RY SUS S M A N

active as investors. But I would say recently that individu-

70 / lawdragon

overheated. Now a number of local governments and the Chinese Securities Regulatory Commission, the CSRC, are trying to get the government to unwind funds that were not properly set up. So it’s a combination of things getting normalized and the general global market for fundraising getting harder. LD: There’s often talk about the “untapped reserves of domestic Chinese investors” and RMB funds have been seen as a vehicle to access these. Can you tell me how the investment community in China really breaks down at the moment? LS: Many of the Chinese State-Owned Enterprises, or SOEs, are still investing. Insurance companies are also

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PRACTICE SPOTLIGHT EMERGING MARKETS

als have cooled a bit. For example, many of the placement

as long as they sign on the same agreements. Sometimes

agents in China have backed away from their earlier more

when you bring two Chinese LPs who don’t get along they

aggressive approaches to place individuals in RMB funds.

ask for so many changes because literally they don’t want

Some of this was a result of the government crackdown

to see the other LP in the fund. This has burned some GPs.

on illegal fundraising to individuals. Literally, a few years

What can be more workable is to have one anchor in-

ago you had certain banks and placement agents sending

vestor - an insurance company - and a range of smaller

out mass-text messages to mailing lists of thousands of

investors.

people saying, “invest in this private equity fund and

LD: Where do you see most divergence in regard to

you’ll get 60 percent return!” High net-worth depart-

fund terms and conditions with Chinese investors versus

ments of some banks were handing out prospectuses of

oﬀshore investors?

private equity funds to investors with no experience of investing at all.

LS: The main diﬀerence is the investment period and fund life, which tends to be very short. Fund life can be

LD: Yes, I recall that last year there was a businessman

as short as three years - there’s still examples of some

from Hunan province, Zeng Chengjie, who was executed

Chinese funds in a sense ﬂipping investments: buying

for crimes related to fraudulent fundraising. I’m wonder-

assets today and having an IPO in three months can still

ing if diﬀerent classes of investors are more attracted to

happen. This does raise the question of how you can re-

diﬀerent types of funds or diﬀerent types of managers?

ally generate value and adequately realize investments.

LS: Some investors, like the Social Security Fund, will

LD: In summary, what are the three key pieces of advice

deﬁnitely not invest in ﬁrst-time funds; generally a longer

you would give to oﬀshore managers looking to access

track record is required. Other investors like the various

domestic capital in China?

government guidance – giving fund investors speciﬁc man-

LS: Firstly, I would say have a substantial local team.

dates as to which industry of funds they should invest in.

This is by far the most important factor hands down and it

LD: What regulatory and tax restrictions and beneﬁts

is very odd to me when a ﬁrm is looking to put a structure

do Chinese investors face? And what do GPs then have to consider in terms of making a vehicle most favorable to diﬀerent types of investors? LS: The issue now is withholding obligations by the fund vehicle. The vehicles are usually partnerships nowadays but the rules are still conﬂicting on whether the fund en-

in place before this - as if “build it and they will come.” Secondly, focus on a smaller number of similarly situated LPs and understand that certain good LPs may need to be cultivated for years. Thirdly, go with more local terms initially and gradually adjust as LPs become more familiar.

tity should be the withholding agent and where the taxes are paid - in the location of the fund or the location of the beneficial owners of the income. LD: What are the major differences between a fundraising process offshore and one in China? LS: The process is mixed because of the incredible diversity of investor types and experiences. Some funds are known to raise instantaneously - in a few weeks. Others - such as foreign-invested - can take years due to difficulties with the proper mixture of LPs. For example, a number of indigenous RMB funds have raised funds by sending out subscription documents in a week and these are signed up and faxed back to them and it’s done! Even in extremely hot funds offshore you will have a much more vigorous process. There’s also the issue of the correct mixture of LPs. When you have an offshore fund, the composition of LPs is important but the mixing of them is not that relevant www.lawdragon.com

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PAUL, WEISS, RIFKIND, WHARTON & GARRISON Technically really great fund lawyers, commercial, and they are nice people Summary of ﬁrm structure:

Key relationship clients:

Paul, Weiss, Rifkind, Wharton & Garrison is a law firm with headquarters in New York. The firm is a partnership with seven offices, in North America, Europe and Asia, and over 800 attorneys.

Apollo Global Management, Bass/Oak Hill Capital, Blackstone/GSO Capital, Clearlake, General Atlantic, JP Morgan, KKR Asset Management, KPS Capital, Oaktree Capital Management, Pershing Square, Resevoir Capital, TowerBrook, ValueAct, Wellspring Capital

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: New York: 5 partners (Udi Grofman, Robert Hirsh, Michael Hong, Marco Masotti, Yvonne Chan), 6 counsel (Amran Hussein, Stephanie McCavitt, Phil Heimowitz, Jyoti Sharma, Jennifer Speigel, Lindsey Wiersma), 20 associates Washington: 1 counsel (Michele Hsu) Levels of associates: Associates are between their 3rd and 8th years Diversity statistics: Information not provided by ﬁrm Ancillary practice support in key locations: ERISA: New York – 3 partners (Robert Fleder, Andrew Gaines, Lawrence Witdorchic) Tax: New York – 7 partners (Richard Bronstein, Patrick Karsnitz, David Mayo, Brad Okun, Jeff Samuels, David Sicular, Scott Sontag)

PHOTO BY MITCH1921/DREAMSTIME.COM

Regulatory: New York – 3 partners (Andrew Ehrlich, Roberto Finzi, Walter Ricciardi) 1 counsel (Philip Heimowitz)

Recent publishable mandates: 2013: Represented Apollo Global Management on the formation of its latest private equity fund with $18.4 billion in commitments 2013: Represented KPS Capital Partners in the formation of KPS Special Situations Fund IV, a $3.5 billion private equity fund that focuses on controlling investments in corporate carve-outs, turnarounds, restructurings, bankruptcies and other special situations 2013: Represented TowerBrook Capital Partners in the formation of TowerBrook Investors IV, LP, a $3.68 billion private equity fund that will focus on controloriented private equity investments in middle market companies in North America and Europe 2013: Represented General Atlantic in connection with raising over $2 billion of committed capital through individual commitment agreements with multiple investors and a new feeder fund Turnover rate – notable departures and hires: None found Asset classes worked on: Buyout, distressed, fund of funds, hedge, mezzanine, real estate, venture/growth capital

lawdragon insights aul Weiss has great strength in private funds

world. One in-house counsel summed up for Insights what

rooted in its New York home. Many spon-

makes him so appealing: “He’s one of the guys I call when

sors acting at the upper end of the market

I’m trying to get a sense of what’s going on in the market.”

come to the ﬁrm for its cutting-edge advice.

This wide grasp of the market has made his a voice that

One of the group’s key relationships is with

is frequent heard in the media.

Apollo, and other clients include the likes of Blackstone/

Day to day, clients point out that with Marco, there’s “no

GSO Capital, TowerBrook and Bass/Oak Hill Capital. In

drama,” as one put it, explaining that “he takes everything

addition to acting for the largest operators in the private

in his stride and if there’s an issue, emergency or crisis,

equity funds space, the group is active on behalf of middle-

he’s very level-headed.” He brings his “knowledgeable and

market managers.

thoughtful” approach to a range of private funds, and he

For many years, the team’s name was synonymous with that of Marco Masotti, who co-heads the practice, but in recent years the hire of Udi Grofman, who co-chairs, and the rising proﬁle of Michael Hong have deepened its oﬀering. The group’s strength in hedge funds means that it is a good choice for managers with a fund portfolio that spans both areas. Clients point to the group’s “breadth of expertise,” and add that across asset classes the team has accumulated “a tremendous amount of experience in the funds world.”

advises many of the industry’s top sponsors. MANDATES • Apollo Management, LP, in the $17.5 billion ﬁ nal closing of Apollo Investment Fund VIII, LP • KPS Capital Partners in the formation of $3.5 billion KPS Special Situations Fund IV • Harvest Partners in forming $1 billion Harvest Partners VI, LP • Clearlake Capital Group in connection with Clearlake Capital Partners III, LP, a $785 million fund

[ ROBERT HIRSH ] PARTNER – NEW YORK

• Iron Point Partners in the formation of $750 million

Senior statesman of the private funds

• LNK Partners, LLC in connection with the $405 mil-

world Robert Hirsh founded Paul Weiss’s investment funds group in 1995, and now sits as chair emeritus of the private funds group. The organization, operation and restructuring of private funds have been his concentration, and he has also handled work on the transactional side, including spin-outs, restructurings, secondary sales of fund interests, and employment arrangements. MANDATES • KPS Capital Partners in the formation of $3.5 billion KPS Special Situations Fund IV • Roark Capital Management in the $1.5 billion final closing of Roark Capital Partners III [ MARCO MASOTTI ] PARTNER – NEW YORK “Has a real vision of what his practice is and can be, and is doing a very effective job of closing that.” Practice co-head, and former chair of the New York City Bar’s Committee on Private Investment Funds, Marco Masotti is a high-profile figure in the funds 74 / lawdragon

fund Iron Point Real Estate Partners II lion fundraising of LNK Partners II, LP • Oaktree Capital Management, LP in forming Oaktree Enhanced Income Fund [ UDI GROFMAN ] PARTNER – NEW YORK “Really smart.” Paul Weiss nabbed lawyer and Israeli Defense Forces captain Udi Grofman from major hedge fund player Schulte Roth & Zabel in 2011, and now he co-heads the private funds group with Marco Masotti. He has structured funds for hedge, private equity and hybrid funds, as well as funds-of-funds and investment management ﬁrms. He also provides regulatory and compliance advice, as well as advising on M&A and reorganizations of investment management ﬁrms as part of a broad-based investment management practice. MANDATES • Blackstone Alternative Asset Management on a variety of its high-end products • KKR Asset Management in launching KKR Credit Relative Value Fund

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[ MICHAEL HONG ] PARTNER – NEW YORK

[ STEPHANIE MCCAVITT ] COUNSEL – NEW YORK

“Detail-oriented, good at communicat-

New York funds counsel with a niche

ing what the issues are and working to

in tax structuring

get to an agreeable solution.” Counsel ﬁnd Michael Hong a person-

Stephanie McCavitt is highly recommended by clients. Her practice involves

able attorney. “His strength is he works well with all

the organization and operation of buyout, hedge, real

people. Even when we have diﬃcult counterparties, he’s

estate, distressed, mezzanine and hybrid funds, as well as

really good at communicating with them and creating

funds-of-funds. Within her private funds practice she has

an environment where we get to the ﬁnish line,” as one

a niche in tax structuring, and this has included advising

pointed out.

in relation to the structuring of executive compensation

Michael Hong is rising up the ranks of the private funds team, and was made partner in the past year. He has been involved in some of the team’s most signiﬁcant fund formation mandates, and he is also involved in transactional work. Clients he has acted for include Apollo Global Management, BlackRock and Fortress Group. MANDATES • Apollo Management, LP in the $17.5 billion ﬁnal closing of Apollo Investment Fund VIII, LP • Harvest Partners in the formation of $1.1 billion fund Harvest Partners VI, LP • GSO Capital in forming a multiple hedge fund and single investor funds [ AMRAN HUSSEIN ] COUNSEL - NEW YORK Amran Hussein is seen as a name to watch in the industry. This lawyer has a wide-ranging practice, which encompasses all aspects of fund formation for clients raising buyout funds, distressed debt funds, real estate funds, hedge funds and funds of funds. Her advice also encompasses regulatory issues for funds as well as investment management M&A and secondary transactions. MANDATES • General Atlantic in connection with raising over $2 billion of committed capital through individual commitment agreements with multiple investors and a new feeder fund • TowerBrook Capital Partners in the formation of TowerBrook Investors IV, LP

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arrangements, as well as other funds-related tax advice. She has also undertaken investment-related M&A. MANDATES • Roark Capital Management in the $1.5 billion final closing of Roark Capital Partners III • Iron Point Partners in the formation of $750 million fund Iron Point Real Estate Partners II [ JYOTI SHARMA ] COUNSEL – NEW YORK “Excellent.” Jyoti Sharma has a practice centered on private fund formation and operation, and her advice has spanned buyout, hedge, structured products, distressed and seed capital funds, as well as funds-of-funds. Separately managed accounts are a particular focus of hers, and she has also advised on the internal arrangements of investment management firms, including spin-outs of Lehman Brothers real estate private equity and merchant banking businesses. [ DAVID SICULAR ] PARTNER – NEW YORK “Extremely smart across a wide range of tax issues.” David Sicular is the first vice chair of the tax section of the New York State Bar Association, and a partner in the firm’s tax practice. He enjoys a broad-based practice advising on the tax aspects of transactions, bankruptcy and insolvency, as well as planning, but his acclaimed expertise in structuring and raising private funds earns him a mention here. He has worked across private equity, hedge and hybrid funds.

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lawdragon insights MANDATES • LNK Partners, LLC in connection with the $405 million fundraising of LNK Partners II, LP • Oak Hill Advisors, LP, in the $1.35 billion final closing for its OHA European Strategic Credit Fund [ ROBERT FLEDER ] PARTNER – NEW YORK Adept at ERISA-related matters Robert Fleder chairs the Paul Weiss employee benefits and executive compensation group, and is past co-chair of the New York State Bar Association’s Employee Benefits Committee of the Tax Section. As part of a practice that covers the gamut of employee benefits and executive compensation issues, he has been active in advising investment funds in connection with ERISA fiduciary matters. MANDATES • LNK Partners, LLC in connection with the $405 million fundraising of LNK Partners II, LP • Iron Point Partners in the formation of $750 million fund Iron Point Real Estate Partners II • Oak Hill Advisors, LP in the $1.35 billion final closing

PHOTO BY ABDULAZIZ ALMANSOUR/FREEIMAGES.COM

for its OHA European Strategic Credit Fund

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

[ INSIGHTS ]

MARCO MASOTTI PAUL WEISS (NEW YORK)

BY CATHERINE MCGREGOR

The financial crisis changed the fundamental relationships between sponsors and their investors. With investor capital at a premium, many sponsors made concessions on terms and fees. Marco Masotti, co-chair of Paul Weiss’ private funds group, discussed with Insights the pressures that fund managers have faced and continue to face over management fees and how they are responding. Masotti is a leading lawyer in alternative asset management, advising the entire gamut of funds – from buyout to fund of funds. He also excels at investment management M&A. JANUARY 2014 Lawdragon: Firstly, do you think that the primary cause for the pressure on management fees is completely a result of the financial crisis and the more difficult fundraising environment? Or, do you think it was something that was going to come eventually as the funds industry matured? Marco Masotti: I’ve been in the business long enough to see the ups and downs of the market at different points in time. It’s been more orientated to the GPs at points in time. However, post-financial crisis, it has been a little bit more orientated towards the investors. I hesitate to answer the question this way, but I truly believe it’s a product of both the financial crisis and the maturing of the fundraising environment. It is undoubtedly a reflection of what happened with the most recent financial crisis. People are still grappling with problems in their portfolios and the need to get to the next fund. As a result, they have been more willing to have an open ear to a management-fee discussion. The investors want lower management fees, which enhances their returns. So it’s definitely a product of increased discussion because of the financial crisis, but then the experiences and sophistication level of the investors were www.lawdragon.com

also increasing. You had documents like those issued by the the Institutional Limited Partners Association (ILPA), which is the investor community’s way of expressing its desired best practices. I think it was both of these factors. Even though I concede there is management-fee pressure (especially post-commitment period), it’s not like the GPs are offering significant discounts for nothing. It may come with a quid pro quo: “You invest more capital and I’ll provide you with a size-based discount.” It may also come if you are an “early bird”: “I’ll provide you with a discount if you come in at the initial closing so I can get to a bigger scale quicker.” The pressure exists and the discounts have been offered but my impression is that they have not been too significant. LD: Is there an industry standard with discounts, or again does it really depend on the strength of the investor versus the strength of the manager? MM: It’s still a little bit of the Wild West currently and hard to discern a clear market practice. The types of discounts offered by the major private equity houses in recent years were varied. I think the overall management fee rate (depending on the size of the fund) is probably in the same ballpark of between 1.25 percent and 1.75 percent. An example of a sliding scale management fee rate is — If you are at $100 million to $250 million it’s X; and $250 million to $500 million it’s Y; and $500 million and above it’s Z. The spread in the discount at each level could be 10bpts to 25bpts. There hasn’t been a universal fee discount but most GPs have built more flexibility into the fundraising process rather than legislating exactly what the discount is. LD: Is it an industry-wide phenomenon or is there more pressure on smaller funds or newer managers versus some of the very big marquee names? Indeed, is there anybody who hasn’t succumbed to any pressure around fees at all? MM: There are lots of different dynamics in the market that go to that question. What we see is that the market is definitely divided up between the “haves” and the “have nots.” And the investor capital is chasing the same few managers – whether they be larger firms or smaller middle lawdragon

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

market ﬁrms. In one case, we had an over-subscribed

ments, or in most cases dealt with through a side letter.

client oﬀer the investors two diﬀerent types of fee choices

LD: Have you seen diﬀerent tactics used by diﬀerent

— a lower management fee and a higher carry and then a

investors to put pressure on GPs to lower management fees?

more standard higher management fee and lower carry.

MM: When you’re raising a fund you are trying to

It goes without staying that the overwhelming number of

bring a very diverse group of investors together around

investors picked the lower management fee and higher

one product and if 10 out of your 25 investors are saying

carry. They dictated their fee terms.

to you, “Look, I want a discounted management fee” - you

Now the have nots are making all sorts of deals with

are probably going to listen.

the investor community and some of these are estab-

So what is the tactic? The investors might talk to each

lished ﬁrms. For newer managers, you are dealing with

other directly or they might inquire who else is commit-

ILPA and you could be forced into a diﬀerent distribution

ting. That’s an organized approach by a group of investors,

methodology. In these cases, investors may want all of

which is one tactic. Then a lot of the investors are just

their money back ﬁrst before the GP takes carry and these

much more savvy about the marketplace, so they know.

ﬁrms may be dealing with a little bit more pressure on the

They know the level of fees, the size of the operation and

management fee (especially post-commitment period).

what predecessor funds have done. They will also have a

The investor doesn’t want the manager just hanging onto

sense of how much of those fees are actually needed for

investments and taking the management fees once they

the ongoing operations of the business.

are incentivized to realize the value. So, prior to the end of the commitment period, there may not be as much fee pressure, but there is a lot more later in the life of the fund. If there is an industry-wide trend, it is that very large investors in any fund (whether major ﬁrm or middle market manager) may be expecting something special if they are writing a huge check. LD: From a structuring point of view, are you normally including that within side letters so that it’s the individual relationship with that particular investor? MM: It’s sometimes in the fund documents. Some major fund managers have structured this into the fund documents. But in most cases it’s not. The manager will provide disclosure, “Look I may oﬀer fee discounts to certain investors who are strategic to me who may write

“IF THERE IS AN INDUS TRYWIDE TREND, IT IS THAT VERY L ARGE INVES TORS IN ANY FUND ( WHE THER MA JOR FIRM OR MIDDLE MARKE T MANAGER) MAY BE E XPEC TING SOME THING SPECIAL IF THE Y ARE WRITING A HUGE CHECK .”

bigger checks than you”.

— M A RCO M A SOT T I

PHOTO BY GREG ENDRIES

The ability to oﬀer management fee discounts will be carved out from the general obligation to oﬀer most-fa-

LD: Do you think the notion of 100 percent transaction

vored-nations treatment to everyone which often appears

fee oﬀset of management fees is going to become standard

in side letters. It’s important, especially in private equity

in some funds?

style funds, to provide disclosure of the fact that there is

MM: I think it’s almost there. You’ve got some legacy

special treatment for certain investors. My experience

funds where the managers maintain a diﬀerent level of

is that the investor community understands size-based

fee sharing but it increasingly diﬃcult for GPs to resist

discounts. Look, if I am writing a $1-million check and

100 percent in the current climate.

somebody else is writing a $25-million check, I get it.

When you get into a conversation with an investor, it’s

LD: Fair enough.

very diﬃcult to resist pressure. As these businesses have

MM: They are getting a diﬀerent deal on fees, they’ve

become more mature, the justiﬁcation for that level of fees

got more capital at risk. I think it’s important to tell the

has become more diﬃcult.

investor that that’s going to be the case and then you need

But I think that if you had to look across the mar-

to contractually provide for it. It’s backed into the docu-

ketplace, a lot of the major ﬁrms have now gone to 100

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percent. When I started practicing, just about everyone

they worry more about the size of the fees in the initial

was at a 50 percent oﬀ-set of management fees and then

years depressing returns. So some people might have

you had some people moving to 75/25 or 80/20 oﬀset of

ﬂuctuating management fees where it’s a little bit lower

the management fees.

earlier on and a little bit higher later on.

LD: From a legal standpoint, how do you think investor

So you’ve got that one trend and then you’ve got the

pressure on management fees, in particular, is changing

concern about so-called “zombie funds” – poor-performing

the way that you structure private equity funds? Look-

funds that continue to hold onto investments in order to

ing forward are there any other aspects of the limited

maintain management fees. A recent private equity fund

partner agreement that might be up for renegotiation as

in the marketplace had a sliding scale of fees dependent

the market changes?

on where in the cycle the fund is. Instead of it being one

MM: I don’t think that the pressure on fees changes

rate pre- and post-commitment period, it ratchets it down

the way we structure our funds. I think it is forcing us to

by 10 percent a year. That’s an example of a little bit more

be a little bit more creative because of a number of the

creativity, a little bit more willingness to try something

diﬀerent dynamics. Investors are a lot more focused on

diﬀerent — that provides the level of total management fees

their reporting obligations and because of the J curve,

that the manager wants, but also listens to the investor.

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PHOTO BY VENTURA69/DREAMSTIME.COM

lawdragon insights

PROSKAUER ROSE

Not only do they know everything that’s been done in terms of current fundraises, standard terms and structures, but because they work with so many different clients on the investor side, they’re very knowledgeable about what are the hot things for those investors, and how to take the fund from a commitment to a close Summary of firm structure: Proskauer, founded in 1875, is a global law firm with over 700 attorneys providing a wide variety of legal services to clients worldwide from offices in Beijing, Boca Raton, Boston, Chicago, Hong Kong, London, Los Angeles, New Orleans, New York, Newark, Paris, São Paulo, and Washington, DC. The firm has wide experience in all areas of practice important to businesses. Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: London: 5 partners (Robert Gaut – tax, Peter McGowan, Oliver Rochman, Kate Simpson, Nigel van Zyl) Boston: 15 partners (Howard Beber, Sarah Cherry, Daniel Finkelman, Sean Hill, David Jones, Scott Jones – tax, Mary Kuusisto – tax, Arnold May – tax, Stephen Mears, Timothy Mungovan - disputes, Malcolm Nicholls, Robin Painter, Jamiel Poindexter – tax, Michael Suppappola, David Tegeler) New York: 6 partners (Ira Bogner - ERISA, Bruce Lieb, Amanda Nussbaum - tax, Charles Parsons, Marc Persily, Christopher Wells - hedge) Paris: 1 partner (Caroline Chabrerie) Hong Kong: 1 consultant (Lynn Chan) Beijing: 1 partner (Yong Ren) Levels of associates: Senior (+7 years): 12 Mid (3-6 years): 24 Junior (-3 years): 10 Diversity statistics: GENDER Partners

6 out of 30 are women = 20%

Associates

14 out of 46 are women = 30%

TOTAL

21 out of 78 are women = 27%

MINORITY Partners

3 out of 30 = 10%

Associates

4 out of 46 = 9%

TOTAL

7 out of 76 = 9%

Ancillary practice support in key locations: Tax: London – 1 senior tax consultant Boston – 4 partners New York – 1 partner ERISA: New York – 1 partner Key relationship clients: Adams Street Partners, Ares Management, HgCapital, J.W. Childs, JP Morgan, Lexington Partners, New Enterprise Associates, Resource Capital Funds Recent publishable mandates: 2013: Represented Czech Asset Management, LP in raising its second direct lending fund, SJC II, with total commitments of $1.5 billion 2013: Represented Resource Capital Funds (RCF) on the formation of Resource Capital Fund VI, LP, with $2.2 billion in commitments 2013: Advised long-standing client, Sterling Partners, in closing Sterling Capital Partners IV, LP, with commitments of more than $900 million 2013: Advised Grey Mountain on its transactions as well as its fund structuring projects and most recently advised on the formation of Grey Mountain Partners Fund III, LP a $425 million lower middle market buyout fund Turnover rate - notable departures and hires: 2013: Yong Ren joined as partner from Mayer Brown and Robert Gaut joined as a partner and head of the ﬁrm’s Tax practice in London from Fried Frank Asset classes worked on: Buyout, distressed debt/special situations, fund of funds, mezzanine, real estate, spin out, secondaries, venture/growth capital

lawdragon insights roskauer is a name that some have associated with LP representation, but this picture is incomplete. The ﬁrm’s understanding of the

lion closing of Resource Capital Fund VI, LP • W Capital in the forming and $750 million closing of W Capital Partners III, LP

investor mindset has proven invaluable to

• Falcon Investment Advisers in the forming and $900

fund manager clients. The group therefore

million fundraise of Falcon Strategic Partners IV, LP

enjoys considerable market-share among sponsors and has

attracted marquee clients such as JP Morgan, Ares and

Lexington Partners. Commenting on the firm’s wealth of market knowledge, one client told Insights, “Proskauer is so in-the-know on what competitors are doing, if one of my partners wanted to change to X,Y,Z, I’d say ‘go and raise the fund yourself.’” The team itself is sizeable, and fields 30 partners spread across offices in Boston, (where the greatest concentration of partners is housed), New York, London, Paris, Hong

Kong and Beijing. This is testament to the firm’s commitment to growth outside of the U.S. – particularly in London, where the group has picked up several significant hires in the past few years, notably Nigel van Zyl from King & Wood Mallesons SJ Berwin, and Kate Simpson from Kirkland & Ellis. Hong Kong and Beijing have also seen recent growth, dovetailing with the firm’s focus on emerging markets – particularly in Latin America and mainland China. Clients can rely on a comprehensive and expanding global spread. In terms of market positioning, Proskauer straddles the range of billion-dollar plus, through mid-market, to venture funds, across a full spectrum of asset classes. The group has also gained traction as a go-to practice in secondary transactions, advising sellers, intermediaries and buyers, and frequently appears in spin-outs for emerging managers. [ DAVID TEGELER ] PARTNER – BOSTON David Tegeler is global co-head of the private investment funds group. Most of his work is for private funds in fund formation, and he has structured a full range of funds, including buyout, venture, secondary, mezzanine, special situation and fund-of-funds strategies. Secondary transactions are another key focus, as are restructuring and governance matters. Representing institutional investors also occupies a significant portion

[ ROBIN PAINTER ] PARTNER – BOSTON Robin Painter is co-chair of the corporate department and global co-head of the private investment funds group. Fund formation, portfolio investments, secondary transactions, spin-outs and internal governance matters are her focus. She is wellknown for her work on behalf of substantial institutional investors and investment advisors, which she advises in connection with sophisticated fund structuring, and secondary transactions. She also represents sponsors in fund structuring and related matters. MANDATES • Enterprise Investors in raising over $525 million for private equity fund, Polish Enterprise Fund VII • Grey Mountain Partners on forming Grey Mountain Partners Fund III, LP, a $425 million buyout fund [ SEAN HILL ] PARTNER – BOSTON “I won’t do a fund without Sean.” Clients are enthusiastic in their praise of private funds co-chair Sean Hill. His sheer hard work was one reason. As one client told Insights, “He’s a rock star. He is dedicated, tireless, and I’ve seen him in many situations on very little sleep, still being sharp as a tack.” Another attribute is the level of knowledge and support he is able to bring to the table: “He is so knowledgeable and through any negotiations I have, I’ll call him and say, hey, let’s walk through this, so we can have constructive discussions” He is also commended for his skill in mentoring, and ability to nurture less senior members of the team. He focuses on providing fund formation and portfolio advice to sponsors, together with assistance with regulatory, compliance and operational matters. Secondary transactions are another area in which he is very active,

of his time.

and he also acts for institutional investors.

MANDATES

• Resource Capital Funds in the forming and $2.2 bil82 / lawdragon

• Atlas Holdings LLC on $900 million closing of Atlas www.lawdragon.com

Capital Resources II, LP • Czech Asset Management, LP in $1.5 billion closing of SJC Onshore Direct Lending Fund II, LP • Ares Management on the formation and $ 1.24 billion closing of Ares Capital Europe II LP [ MALCOLM NICHOLLS ] PARTNER – BOSTON Malcolm Nicholls also co-chairs the ﬁrm’s private funds group. Clients are keen advocates of his skills and com-

ingful in a couple of succinct sentences.” He represents sponsors in forming and raising funds, institutional investors investing into funds, and also advises a number of secondary investment fund sponsors and institutions in connection with secondary transactions on the buy-side and sell-side. Regulatory compliance is another area in which he is often involved, particularly advising in connection with the Investment Advisers Act of 1940. MANDATES • Ridgemont Equity Partners in the formation and

merciality, which he puts to use in private

operation of middle market and growth equity buyout

equity transactions, fund formation, sec-

funds totaling more than $1 billion in capital

ondary transactions, portfolio investments and governance issues, for his client base of fund managers, institutional investors and investment advisors. MANDATES • Blue Wolf Capital Partners in the formation of the $300 million fund Blue Wolf Capital Fund III, LP • OrbiMed Advisors LLC in the formation of OrbiMed Private Investments V, LP with aggregate capital commitments of approximately $735 million [ HOWARD BEBER ] PARTNER – BOSTON Howard Beber is another Boston-based private funds group co-chair. He concentrates his practice on acting for sponsors

• ABS Capital in the formation of a $500 million fund [ STEPHEN MEARS ] PARTNER – BOSTON Stephen Mears advises buyout, venture capital, growth equity and mezzanine fund sponsors on fund formation, operation and management issues from his Boston base. He also acts for institutional investors in their involvement with private funds. MANDATES • General Catalyst Partners on closing $677 million General Catalyst Group VII, LP • Sterling Partners, in the $900 million close of Sterling Capital Partners IV, LP

in fund formation, GP operational issues

• Enterprise Investors in raising over $433 million

and spin-outs. He also advises institu-

for private equity fund, Polish Enterprise Fund VII

tional investors in their forays into buyout, venture capital, real estate funds and more, as well as in connection with co-investment matters and secondary transactions. MANDATES • Ridgemont Equity Partners in the formation and operation of middle market and growth equity buyout funds totaling more than $1 billion in capital • Atomico Investment Holdings Ltd. on the $482 million closing of Atomico III, LP [ MICHAEL SUPPAPPOLA ] PARTNER – BOSTON “He’s thorough and has a good sense for what’s important.” Michael Suppappola is praised by clients for his ability to “get to the bottom line very quickly.” As one client told Insights, “he is mean-

www.lawdragon.com

[ SCOTT JONES ] PARTNER – BOSTON Scott Jones is highly acclaimed by clients for his funds-based tax advice. He acts for fund managers regarding the tax aspects of their fundraising and investment and organizational issues, as well as advising investors regarding the tax elements of their investments into buyout, venture capital, hedge funds and more. M&A, equity compensation arrangements, and ﬁnancing techniques for investments in tax-transparent entities are other areas in which he has expertise. MANDATES • Sterling Partners, in the $900 million close of Sterling Capital Partners IV, LP • Enterprise Investors in raising over $433 million

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lawdragon insights for private equity fund, Polish Enterprise Fund VII [ JAMIEL POINDEXTER ] PARTNER – BOSTON “Good with clients, and commercial – not only does he have all the knowledge, but he also understands when you push and when you don’t.” Jamiel Poindexter focuses his practice on the tax implications of fund formation and investments into buyout venture capital and secondary funds, as well as fundsof-funds and other investment partnerships. His clients include sponsors, funds-of-funds, institutional investors, tax-exempt organizations, government entities and individuals. MANDATES • Grey Mountain Partners on forming Grey Mountain Partners Fund III, LP, a $425 million buyout fund • New Enterprise Associates in structuring and $2.5 billion closing of New Enterprise Associates 14, LP [ ARNOLD MAY ] PARTNER – BOSTON Arnold May advises private equity fund managers on the tax planning aspects of fundraising, investment and internal organizational matters. He also acts for investors in buyout, venture capital and hedge funds as well as other investment partnerships, including advising on international tax issues. He also provides tax advice in connection with M&A, equity compensation arrangements and ﬁnancing techniques for tax-transparent entities. MANDATES • Blue Wolf Capital Partners in the formation of the $300 million fund Blue Wolf Capital Fund III, LP • Atlas Holdings in the formation and $900 million closing of Atlas Capital Resource II, LP [ MARY KUUSISTO ] PARTNER – BOSTON Former accountant and auditor, Mary Kuusisto was previously managing partner of Proskauer’s London oﬃce. After returning to the U.S. at the end of 2011, she is now based in Boston, advising clients on the tax aspects of structuring and operating private 84 / lawdragon

funds. She has advised buyout, venture capital, mezzanine, distressed debt, secondary funds and funds-of-funds, as well as investment managers and GPs. She has also acted for institutional investors, and trade organisations, such as the U.S. National Venture Capital Association (NVCA), which she advises on lobbying activities. MANDATES • Scale Venture Partners (ScaleVP) in closing Scale Venture Partners IV, LP • HgCapital on structuring and $3.34 billion closing of its seventh buyout fund • Resource Capital Funds in the forming Resource Capital Fund VI, LP [ STEPHANIE BERDIK ] ASSOCIATE – BOSTON Stephanie Berdik has impressed clients with her promptness and dedication, and is felt to exemplify the Proskauer ethos of top-to-bottom quality. She rejoined the firm after a spell as vice president and senior counsel at State Street Global Advisors. She focuses on fund structuring, raising and regulatory compliance, as well as secondary portfolio investment transactions, for a client base of fund sponsors and institutional investors. MANDATES • Ares Management on the formation and $ 1.24 billion closing of Ares Capital Europe II LP • Ares Management on GBP 100 closing of Ares UK Credit Strategies, LP [ IRA BOGNER ] PARTNER – NEW YORK Ira Bogner chairs Proskauer’s tax department, and also sits within the firm’s employee benefits, executive compensation and ERISA litigation team. He is noted for his skill in applying his knowledge of ERISA to investment fund operations as part of his wider employee benefits and executive compensation practice. He also structures and analyzes alternative investments for pension trusts and other exempt organisations, as well as for investment funds in which pension plans participate. The “plan asset” regulations is an area in which he has considerable experience, and he has advised on this in connection with the formation of a range of funds, including private equity real estate, hedge funds, infrastructure and funds-of-funds. www.lawdragon.com

MANDATES • Resource Capital Funds in the forming of Resource Capital Fund VI, LP • Sterling Partners, in the $900 million close of Sterling Capital Partners IV, LP • HgCapital on structuring and $3.34 billion closing of its seventh buyout fund • HgCapital on closing its $636 million Mercury buyout fund [ NIGEL VAN ZYL ] PARTNER – LONDON “Pragmatic, sensible and commercial.” When Nigel van Zyl was hired by Proskauer from (then) SJ Berwin in 2011, it was a coup for the ﬁrm, bringing with him clients such as HgCapital. He’s respected by both funds counsel and peers, and is perceived to be cultivating an attractive practice in the London oﬃce. He spends a good chunk of his time acting for fund managers in forming, raising and ongoing operations of funds in the private equity, infrastructure and renewables sectors, as well as funds-of-funds. He also undertakes secondary transactions, carried interest and co-investment issues, spin-outs, reorganization and restructuring, and investor-representation. MANDATES • HgCapital on structuring and $3.34 billion closing of its seventh buyout fund • HgCapital on closing its $636 million Mercury buyout fund

[ KATE SIMPSON ] PARTNER – LONDON Pragmatic and commercial London funds partner Kate Simpson was hired from Kirkland & Ellis to join Nigel van Zyl in 2011, and is a popular choice among clients. Fund structuring, and secondaries work, including buy and sell-side portfolio transactions and synthetic secondary and co-investment structures are areas of focus or her, and she also acts for investors. MANDATES • HgCapital on structuring and $3.34 billion closing of its seventh buyout fund • HgCapital on closing its $636 million Mercury buyout fund [ PETER MCGOWAN ] PARTNER – LONDON London-based regulatory specialist Peter McGowan was hired to join the London oﬃce in 2011 from Berwin Leighton Paisner. His expertise in the UK and EU regulatory landscape spans a full range of laws and regulations, such as AIFMD, UCITS and Basel III (to name a few), and he applies this to structuring private equity, retail, real estate and hedge funds, as well as corporate transactions, M&A, fund administration and other investment management issues. MANDATES • HgCapital on structuring and $3.34 billion closing

PHOTO BY ISTOCK.COM/FSTOCKFOTO

of its seventh buyout fund

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PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

[ INSIGHTS ]

SEAN HILL PROSKAUER (BOSTON)

BY CATHERINE MCGREGOR

Sean Hill is a highly regarded private funds lawyer, noted for his work in fund formation. As co-head of Proskauer’s private investment funds group, he handles the entire range of matters for alternative investment sponsors, investors and professionals, specializing in representing U.S. and non-U.S. sponsors in fund formations and portfolio activities, including complex secondary transactions. Among his clients are Ares Management, Atlas Holdings, Czech Asset Management, J.W. Childs, Lexington Partners, Montauk TriGuard, New Leaf Venture Partners, Praesidian Capital, TVV Capital and Willowridge Partners. He spoke to Insights about structured secondary transactions. JANUARY 2014 Lawdragon: Explain to me what a structured second-

PHOTO BY KEN RICHARDSON

ary transaction is?

want to have the fund liquidated and any remaining capital returned so they can redeploy that money in other areas. In other situations a fund runs out of dry powder and the portfolio needs additional financing from the fund because third-party financings would be too dilutive. There are many different transaction structures available to solve these issues, but the hallmark is that existing investors are offered an option to gain liquidity or to maintain an interest in the portfolio while the new capital comes in to purchase a share of the existing investments and further support the portfolio. That’s what people think of today when they hear about a “structured secondary.” Whether a fund sponsor or an investor, these transactions are becoming more common, and many professionals are asking, “If this comes up for me, how do I respond to questions? How can we do this? What should I be worried about?” LD: In what sort of instances are you seeing structured secondary transactions? Is it in particular types of funds and at what point – around the 10- or 12-year point, or earlier than that? SH: It’s usually around the 10- or 12-year point in a

Sean Hill: Historically, a “structured secondary” was

fund’s life where there are material assets remaining but

a transaction to bridge a pricing gap where the buyers

it’s near the time when the fund should wind up. It used

and sellers aren’t able to meet in the middle. It can take

to be that fund terms were extended many times, often

many forms but substantively this structure is a way

beyond 15 years, to wait until the assets fully mature to

to buy and sell assets with price protections for both

extract maximum value. Today investors are anxious to

sides – essentially a mechanism so that both parties feel

have a fund realize its investments within the original

like they’re getting a fair deal. In many ways these deals

term and wind up (and also stop paying management fees).

are no diﬀerent than the sale of a company that has an

Another situation used to be with Small Business Invest-

earn-out as part of the purchase price, where the buyer

ment Company (SBIC) funds where the leverage is due to

purchases the assets and a portion of the purchase price

be repaid to the U.S. Small Business Administration but

will be paid in the future based on certain milestones.

there is insuﬃcient capital to do so and a ﬁre sale of the

Another traditional situation is where the seller wants to

assets is not a viable option. We also see this with funds

maintain its relationships with the underlying managers,

where the sponsor has decided not to raise another fund,

so the buyer takes a “participation” in the portfolio, usu-

or there has been some other major situation such as a

ally through a special purpose vehicle. Today what its come to mean is fund re-capitalizations or restructurings of funds. These transactions come about

key man event or general partner removal. All of these can occur at any point and not just at the end of the life of a fund.

for many diﬀerent reasons. Many times it is because a

LD: Are you seeing this happening in a whole range of

fund is nearing or past the end of its life and its investors

funds, from the kind of bigger, marquee-type players, into

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lawdragon insights more the mid-market, and maybe even down to growth-

that are left or that are interesting, and in those cases a

equity type players?

sponsor might be able to structure a joint venture around

SH: I’ve seen these transactions in all types of funds,

those assets with a secondary buyer or a strategic investor.

from a very small remaining portfolio, to large funds, to

LD: Would you say that the fund recapitalization - more

publicly traded private equity vehicles. They don’t tend

at the end-of-life fund type of structured secondary - has

to get too large because there are not many investors

become more prevalent and more popular in recent years?

with enough capital to underwrite multi-billion dollar

And if so, why?

deals. These deals get done with all types of underlying

SH: It’s deﬁnitely become more prevalent and I think

assets but primarily in venture capital, growth capital

it’s primarily because there are a lot of older funds out

and small cap and mid-market buyout, and with both U.S.

there, which wasn’t really the case seven or eight years

and non-U.S. sponsors.

ago. The market was frothy back then and assets were

We don’t see these in real estate funds as their portfolio

getting sold and liquidated more quickly. Sponsors could

tends to get reﬁnanced at the asset level, nor in credit funds

also more easily raise money so there were fewer manag-

because they don’t have the high expected returns of equity

ers that were getting out of the game.

funds and their assets are generally more saleable. There

Then the downturn came and everyone kept their head

could be an uptick in these deals in the energy sector but

down for a while, just doing everything they could to

“E ACH TR ANSACTION IS VERY TAILORED AS COMPARED TO A TR ADITIONAL SECONDARY SALE OF A PORTFOLIO OF INTERESTS, WHICH IS FAIRLY BENIGN BY COMPARISON. EVERY STRUCTURED SECONDARY IS UNIQUE”

— SE A N H I L L

time will tell there. Venture transactions have increased in

manage the portfolio – that includes investors that sold

recent years, especially in life-sciences, as the life cycle of

their interests in the funds to secondary buyers. There

those companies tends to be longer and investors want the

used to be more cross-over investments as well, where

liquidity. An increase in the number of trades of limited

an existing and successor fund would co-invest, or the

partner interests in a fund could signal to a sponsor that

successor fund would make an investment in a portfolio

it’s time to start considering options (though that could

company of an existing fund. Now investors and spon-

just mean that it’s a desirable fund and the limited partners

sors alike generally seek to avoid these types of conﬂicts.

are seeking to sell their high-value assets). LD: What tends to be the proﬁle of the investors who are looking to buy these interests? SH: Not surprisingly it’s specialist secondary partici-

Now sponsors and investors are getting more sophisticated and the funds continue to age – they have companies that have not been able to be sold or reﬁnanced that are still attractive to both existing and new investors. The

pants that have the knowledge, expertise and experience to

underlying companies have typically stalled due to mar-

work through the issues of the parties involved and work

ket conditions and not because of management or other

with a sponsor to create a solution. These deals are not

internal issues.

easy by any means, with many diﬀerent constituents to

Ultimately the underlying companies are still worth

consider and accommodate. The traditional secondary

something, but it’s going to take longer to achieve that and

funds pioneered the market for these transactions, and

require additional capital, a situation which the existing

lately sovereign wealth funds and pension plans with

LPs may not be willing to support. It is highly unlikely

dedicated transactional teams are more active.

that you could get all the investors in a fund to agree to

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commit additional capital to fund follow-on investments in www.lawdragon.com

PRACTICE SPOTLIGHT ALTERNATIVE STRATEGIES FOR FUNDS

a portfolio; fund-level borrowing to support the portfolio is rarely an option, and most investors want to end the term and are not willing to pay management fees for the time it would take for the assets to mature.

LD: Obviously it’s right at the end of the life cycle of the fund, but are there tax implications? SH: The parties try to structure around that to the extent that is possible. If you’re getting cash, you’re getting

LD: How much when you’re structuring one of these

cash, and you have a proﬁt or loss. If you’re rolling over

is it bespoke structuring versus a traditional secondaries

into the new vehicle, it is typical to structure that so it’s

transaction structure?

tax-free. Sometimes it’s not possible, but that’s the goal.

SH: Each transaction is very tailored as compared to a traditional secondary sale of a portfolio of interests, which is fairly benign by comparison. Every structured

LD: Do you be usually represent the sponsors in this sort of transaction? SH: I’ve represented all parties in these transactions –

secondary is unique, and you need to consider, among

sponsors, buyer and investors. Each type of participant has

other things, the terms of the partnership agreement, the

its own concerns and challenges. Because we are involved

economic terms of the transaction (which vary greatly),

in so many of these transactions, people come talk to us

the motivations of the buyers, sponsor and existing LPs,

because we have the experience from all sides, and we’ve

antitrust, regulatory and licensing matters, the change of

been asked to represent sponsors in these transactions

control provisions of the underlying portfolio companies,

even if we weren’t original fund counsel.

as well as the rights of ﬁrst refusal and similar protective

LD: Because there’s more complexity and you’ve got

provisions related to them. At the end of the day the

more parties present, how does that aﬀect the role of

structured secondary provides a solution to a set of issues.

external counsel. You have the main fund counsel, and

LD: Does the documentation for this look quite diﬀerent

then you have the people representing the LPs but what

from a traditional secondary transaction? Is it taking the

does this throw into the mix?

same starting point or is it quite diﬀerent in how it looks?

SH: A structured secondary is both a capital raise and

SH: A structured secondary is quite, quite diﬀerent. A

an M&A transaction, so you need to understand the archi-

traditional secondary is a transfer of a portfolio of limited

tecture of the fund, whether you’re the buyer, the sponsor

partner interests from a seller to a buyer. The third leg of

or an LP that’s considering whether to cash out or roll over,

a traditional secondary is the underlying general partner,

as well as the deal terms and how to execute the transac-

which needs to consent to the transfer. There is a purchase

tion. If you don’t have experience in all relevant areas it

and sale agreement, and assignment and assumption

is hard to learn on the ﬂy and identify issues before they

agreements, all of which tend to be fairly standard. Oc-

become issues. In addition to fund and M&A expertise,

casionally there is a right of ﬁrst refusal to contend with,

you need securities, tax, regulatory, ERISA, antitrust,

but all in all the complexity of a traditional secondary var-

ﬁnance and often oﬀshore expertise. It takes all those

ies by the size of the portfolio, the number of buyers and

disciplines in order to be able to successfully complete

sellers, and the jurisdictions of the underlying interests.

one of these transactions.

I’ll give you a typical proﬁle of a structured secondary.

LD: Is this type of structured secondary transaction

New money is coming in to purchase a portion of an exist-

replacing the more traditional type? Or are they both

ing portfolio. The existing limited partners are provided

still going strong?

with the option to cash-out or to roll over their interests

SH: No, it’s not replacing the traditional secondary.

into the new structure. The deal needs to be negotiated

But now these represent a more measurable percentage

between the sponsor, the buyers and the existing limited

of the market. Pricing on LP interests has been increasing,

partners and often the fund’s advisory board, not to men-

and while there continue to be many portfolio sales the

tion running the regulatory and legal traps at the portfolio level. There are of course transaction agreements, but also

secondary buyers are trying to ﬁnd ways to create more “alpha” with these non-traditional deals.

new or amended partnership agreements and disclosure

These deals also oﬀer the opportunity to put more

materials. There are often multiple layers of intermediate

capital to work in one place. Obviously when you have

entities, there can be onshore and oﬀshore companies

more capital in one place there’s more risk there, but

and alternative investment vehicles. There’s a lot more

it is becoming more and more attractive. There’s less

complexity than just a buyer and seller.

competition because there are only so many people that

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lawdragon insights are interested in these deals that have the capital to do it

situations and other unique transactions evolved where

and the expertise to execute them.

the parties need to solve an issue, not just transfer assets.

LD: Have you seen any of these transactions where

The evolution into the current structured transactions

there’s been a certain amount of contention? What hap-

has been more recent, but as I said there have been many

pens if some of the original LPs don’t want to sell? How

similar things that have been done for a long time.

can that be resolved?

LD: You mentioned the increase in sophistication of

SH: The sponsor has to satisfy its ﬁduciary duties and

many of the investors, people that actually have secondary

comply with the partnership agreement. So it needs to

teams. The industry’s at a kind of interesting point isn’t

negotiate a deal that’s fair to the fund and its limited

it? It is at a point of greater maturity?

partners, while still ﬁnding a way to achieve the goals of

SH: There are a lot of new entrants in private equity

the transaction. It’s hard to get unanimous support for

generally but more speciﬁcally into the direct investments,

anything these days, whether that’s in politics or funds,

whether that’s co-investing with a sponsor, leading trans-

but ultimately there are choices for the parties involved.

actions or participating in the secondary market. It used

LD: How long roughly have these types of structured

to be that secondary buyers were primarily secondary

secondary transactions been out there?

funds that were formed solely for this purpose, and now

SH: We’ve been seeing secondary transactions that

fund of funds, institutional investors, state pension plans

would be called structured secondaries for quite some

and sovereign wealth funds participate in direct investing

time. Some of the earliest secondary deals would ﬁt this

and secondaries.

mold. Maybe eight years ago there was somewhat of a

But it’s a relatively mature industry. We’ve been work-

resurgence of non-traditional deals. Sometimes it was

ing with secondary funds since the early ‘90s, so it’s been

backing a management team that was spinning out from

around for a while but continues to grow. That’s why there’s

an institution or another sponsor – those were called

more creativity in designing transactions, because the pricing has become heated in the traditional portfolio sale

portfolio of interests directly in portfolio companies and

of limited-partner interests as the number of participants

then hiring a team to manage them. Then these end-of-life

in the market has increased.

PHOTO BY 7XPERT/DREAMSTIME.COM

structured transactions. Sometimes it was picking up a

90 / lawdragon

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ROPES & GRAY

“A really excellent top-tier fund practice. They really understand this world and all the issues in a deep and meaningful way.” Summary of ﬁrm structure:

Ancillary practice support in key locations:

Ropes & Gray has a global team of more than 1,100 legal professionals. The ﬁrm is a partnership with ofﬁces in New York, Washington, D.C., Boston, Chicago, San Francisco, Silicon Valley, London, Hong Kong, Shanghai, Tokyo and Seoul.

Tax: Boston – 3 partners (Amanda Holt, Christopher Leich, Brett Robbins), 2 senior funds attorneys (Darca Boom, Melissa Haley), 2 associates

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation:

ERISA: Boston – 2 partners (Peter Rosenberg, William Jewett), 1 associate

New York: 10 partners (Marc Biamonte, Bryan Chegwidden, Sarah Davidoff, Isabel Dische, Michael Doherty, Laurel FitzPatrick, Mark Gurevich, Jessica O’Mary, Joel Wattenbarger, Morri Weinberg), 1 senior counsel (William McCormack ),1 counsel (Mark Sugino), 8 associates California: 1 partner (Raj Marphatia), 1 senior funds attorney (Melissa Bender), 3 associates London: 2 partners (Anand Damodaran, Matthew Judd), 5 associates Boston: 6 partners (John Ayer, Alison Bomberg, Jason Brown, Peter Laybourn, Ann Milner, Larry Jordan Rowe), 2 counsel (Debra Lussier, Jason Kolman), 8 senior funds attorneys (Debra Allen, Michaela Dohoney, Brigid Hurley, Jillian Johnston, Sara Lieberman, Zaid Van Giffen, Bridget Bettigole, Pamela Delphey), 1 funds attorney (Harriott Snyder), 10 associates Asia: 1 partner (Geoffrey Chan), 2 associates Levels of associates: Senior (+7 years): 7 Mid (3-6 years): 10 Junior (-3 years): 8 Diversity statistics: GENDER Partners

8 of 37 are women = 22%

Counsel

2 of 5 are women = 40%

Associates

22 of 37 are women = 59%

TOTAL

32 of 79 are women = 41%

New York – 2 partners (Daniel Kolb, Jay Milkes), 1 counsel (Natasha Koffman), 2 associates

Regulatory: London – 1 partner (Michelle Moran) Key relationship clients: Bain Capital, TPG Capital, PIMCO, Nordic Capital (Europe), RRJ Capital (Asia), FountainVest, Boston Ventures, Landmark Capital, Brown University Recent publishable mandates: Ongoing: Advises FountainVest in the creation of its ﬁrst US$ China fund. Most recently, worked with FountainVest in relation to the launch and closing of a $1.4 billion ﬁnancial closing for the client’s Fund 2 Ongoing: Represents GSAM funds in many of their investment activities in private equity and venture funds, including representing them as anchor investors – helping to organize funds from the investor side – and in co-investment activities. Assisted GSAM in connection with Goldman Sachs becoming a bank holding company and in organizing the template funds for their fund of funds and secondary funds business Ongoing: Serves as Harvard’s counsel in a wide variety of its investment activities, including in connection with analysing and structuring investments in and dispositions of private equity, venture, natural resource, real estate, and hedge funds, as well as in coinvestment and direct investment opportunities and separate accounts Ongoing: Represents Makena Capital in all of their investment transactions, including investments in private equity funds, venture capital funds, hedge funds, managed accounts, and derivative transactions Turnover rate – notable departures and hires:

MINORITY Partners

3 out of 37 = 8%

Counsel

1 out of 5 = 20%

Associates

8 out of 37 = 22%

TOTAL

12 out of 79 = 15%

2012: Partner Mark Tannenbaum retired Asset classes worked on: Buyout, fund of funds, mezzanine, real estate, secondaries, spin out, venture/growth capital

lawdragon insights istorically considered an investor-side practice, Ropes & Gray has been steadily working to transform itself into a more

[ JOHN AYER ] PARTNER – BOSTON “He’s incredibly familiar with fund

balanced oﬀering, and now enjoys a

documents, operations and the indus-

fairly even spread of instructions from

try – he’s so knowledgeable.”

both GPs and LPs. And a sizable roster of investor clients

comes with advantages – a global overview of funds coming to market that purely sponsor-side ﬁrms might not be privy to. General counsel are consistently impressed by the team’s bank of knowledge, and the way team members bring this to bear in their advice – as one told Insights: “I think it is a characteristic of Ropes attorneys that they have

great knowledge but can distill complex things down in a user-friendly way.” Secure in a solid commercial understanding, the group fields practitioners who are “prepared to take some risk in their advice” – and as one client went on to explain, “they expose the risk but are a sounding board about whether I should take that risk, which is super-efficient from my end.” Ropes & Gray has its origins in Boston, where it retains a substantial private funds presence, but the generous U.S. ranks are swelled by group members in New York and California. In the past two years, the team has made a strategic effort to boost numbers in London and Asia, deepening its footprints in these markets and ensuring coverage of the dominant funds locations of Europe, the U.S. and Asia. In London, the hires of Matthew Judd and Anand Damodaran heralded the move of Nordic Capital’s fund structuring work away from long-term advisor White & Case, where the pair formerly worked. In China, Geoffrey Chan joined the firm from O’Melveny & Myers. He works on both onshore RMB-denominated funds and offshore funds focused in Asia. Through this hire, the group has extended its reach with Chinese institutions including Chinese Sovereign Wealth funds.

John Ayer co-heads Ropes & Gray’s private funds practice. He acts for sponsors in structuring, fundraising, operation and governance, as well as in connection with transactions and portfolio company issues. MANDATES: • Thomas H. Lee Partners LP in raising its buyout fund, Thomas H. Lee Equity Fund VII, LP • National Football League in forming a joint venture fund with Providence Equity Partners Inc. to make growth equity investments in sports and media companies worldwide [ RAJ MARPHATIA ] PARTNER – SILICON VALLEY Raj Marphatia co-heads the private funds group from the Silicon Valley ofﬁce, having moved there from Boston in 2012. He acts for sponsors in fund formation, operation and investment, and institutional investors in their primary and secondary transactions, as well as having a particular knowledge of spin-oﬀs. His skillset spans buyout, hedge and venture capital funds, and funds-of-funds. MANDATES: • Makena Capital, a fund-of-funds manager in connection with investments in private equity funds, venture capital funds, hedge funds, managed accounts, and derivative transactions [ ANN MILNER ] PARTNER - BOSTON

Secondar y transactions, including structured

Former head of the ﬁrm’s private funds

secondaries, are another growth area for the team, which

group, Ann Milner primarily advises buy-

also has a solid regulatory function, oﬀering support to

out, hedge, venture, debt and special fo-

sponsors on the U.S. Investment Advisers Act, AIFMD,

cus fund managers in fund formation and

SEC registration and examinations. Clients see the group

ongoing operation issues, but also acts

as well-positioned for work in both the high-end and

for investors into private funds and other investments.

mid-markets.

MANDATES: • Thomas H. Lee Partners, LP, in raising its buyout fund, Thomas H. Lee Equity Fund VII, LP • Bain Capital Venture Partners on the formation of a

92 / lawdragon

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$600 million fund targeting seed investments and

• Makena Capital in connection with investments in

growth equity investments in the business services,

private equity funds, venture capital funds, hedge

consumer, health care and technology sectors

funds, managed accounts, and derivative transactions

[ BRYAN CHEGWIDDEN ] PARTNER – NEW YORK / BOSTON “You always get that same level of

[ LARRY JORDAN ROWE ] PARTNER – BOSTON The well-regarded Larry Rowe is the

instant responsiveness and careful

former co-head of the private equity and

considered thinking.”

venture capital groups. He primarily acts

Bryan Chegwidden has a foot in each of the Boston and New York offices – he headed the New York office until 2011 - and he also co-leads Ropes & Gray’s investment management group. His is a broad-based investment management practice, ranging across structuring private equity, hedge funds and funds-of-funds, as well as mutual funds. He can often be found acting on behalf of non-U.S. sponsors bringing products to the U.S., as part of a client base that includes investment advisers and directors. Clients admire his consistency, telling Insights, “He really knows us so well over the years and it never changes, even if we are one hundred and fi ftieth on his importance list.” MANDATES: • Blackrock, Inc., on its acquisition of the $7.5 billion Swiss Re Private Equity Partners (SRPEP) AG [ PETER LAYBOURN ] PARTNER - BOSTON Peter Laybourn was named in the firm’s November 2013 round of partner promotions, having worked on some of the practice’s key recent mandates. His focus is sponsor-side, advising fund managers of all sizes in forming and organizing private equity, hedge and funds-of-funds. He also advises institutional investors, as well as taking on transactional work, spinoffs, and other corporate and securities issues. [ JASON BROWN ] PARTNER - BOSTON Jason Brown acts for investment advisers in relation to private equity, hedge and mutual funds, as well as separate accounts and commodity pools. MANDATES • Thomas H. Lee Partners in raising its seventh fund, Thomas H. Lee Equity Fund VII, LP

www.lawdragon.com

for institutional investors in their operations and investment activities. MANDATES: • GSAM funds in numerous investment activities • Harvard in numerous investment activities [ MARC BIAMONTE ] PARTNER – NEW YORK Former accountant and management consultant Marc Biamonte focuses on forming private funds such as buyout, venture, hedge, special focus and fundsof-funds, as well as providing Advisers Act guidance to private equity investment advisers, and transactional, including spinoﬀ, support to managers. MANDATES: • Blackrock, Inc., on its acquisition of the $7.5 billion Swiss Re Private Equity Partners (SRPEP) AG • Kohlberg & Co. LLC in raising its $1.6 billion private equity fund Kohlberg Investors VII, LP • National Football League in forming a joint venture fund with Providence Equity Partners Inc. [ MORRI WEINBERG ] PARTNER – NEW YORK Morri Weinberg has a fund formation practice incorporating private equity, buyout, venture capital, secondary debt and fundsof-funds strategies. He also advises investors into primary, secondary and co-invest vehicles, and engages in transactional work, including spin-oﬀs. [ ARTHUR ANDERSEN ] ASSOCIATE - BOSTON Arthur Andersen is considered by clients to be a responsive and knowledgeable addition to a fund formation team. He advises new investment managers as well as longtime players, and also undertakes investment, compliance and securities matters, and transactional work.

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lawdragon insights [ MATTHEW JUDD ] PARTNER – LONDON “A genius in negotiations and coming up with arguments that investors will listen to – the LPs can trust him.” Matthew Judd’s arrival in 2012 from White & Case underscored the seriousness of Ropes & Gray’s commitment to building its London oﬀering, and his twenty years-plus experience in the industry make him a sturdy hire. He continues his work as long-time advisor to Nordic Capital, and has also acted for the likes of BlackRock and Société Générale. His practice covers structuring private equity, infrastructure, real estate and credit funds, as well as secondaries, carried interest and co-investment matters. MANDATES: • Nordic Capital, in connection with the formation of Fund VIII [ ANAND DAMODARAN ] PARTNER – LONDON “He knows everything oﬀ by heart, super-pragmatic, very solution-ori-

Matthew Judd and Anand Damodaran. He is described as “intelligent, solution-oriented, and very quick,” in his work for private equity and real estate funds, and investors in formation, sale and acquisition of fund interests. [ GEOFFREY CHAN ] PARTNER – SHANGHAI Shanghai-based high-flier A former investment banker at Merrill Lynch, Geoff rey Chan was one of the founding partners of Ropes & Gray’s Shanghai office, which opened in 2011. He’s a key figure in the firm’s bid for private funds work in mainland China, and assists sponsors and investment advisers throughout Asia on fund formation and ongoing matters. He is active in forming U.S. Dollar private equity and venture capital funds for China- and Hong Kong-based managers, as well as those based elsewhere in Asia. He also acts for institutional investors in Asia-based private equity funds and other investment strategies. He speaks Mandarin and Cantonese. MANDATES: • Banyan Capital in connection with the $206 million

ented and super-intelligent – he’s able

fundraising of its ﬁrst venture capital fund, Banyan

to come up with on-the-spot solutions

Partners Fund I

on problems.” White & Case alumnus Anand Damodaran came over to Ropes and Gray to take partnership shortly after Matthew Judd. He is another integral piece of the London practice and is often to be found working alongside Judd for clients

• FountainVest in establishing and closing its $1.4 billion Fund 2, and in setting up its RMB funds [ VINCE IP ] ASSOCIATE – HONG KONG Associate Vincent Ip relocated to Hong Kong in 2009

such as Nordic Capital. Private equity, real estate and

from the ﬁrm’s Boston oﬃce. He concentrates his prac-

hedge fund formation are his concentrations, together

tice on the formation and representation of Asia-focused

with carried interest and co-investment arrangements,

private investment funds, including buyout funds, growth

and primary and secondary transactions.

equity funds, real estate funds and funds of funds. He

MANDATES: • Blackrock, Inc., on its acquisition of the $7.5 billion Swiss Re Private Equity Partners (SRPEP) AG • Nordic Capital, in connection with the formation of Fund VIII [ JAMES BOARD ] ASSOCIATE – LONDON A rising star in the London oﬃce Having joined Ropes & Gray in 2012, associate James Board is quickly making

also advises sponsors and investment advisers in internal matters, including employee investment schemes and other corporate, governance, securities and compliance matters. Institutional investors also comprise part of his client base. He speaks Cantonese. MANDATES: • Bain Capital Venture Partners on the formation of a $600 million fund targeting seed investments and growth equity investments in the business services, consumer, health care and technology sectors

a name for himself under the guidance of 94 / lawdragon

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SIMPSON THACHER & BARTLETT They’re doing one enormous fund after another Summary of firm structure: Simpson Thacher is an international law firm with offices in New York, Beijing, Hong Kong, Houston, London, Los Angeles, Palo Alto, São Paulo, Seoul, Tokyo and Washington, D.C. Established in 1884, the firm is a partnership with more than 850 lawyers. Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: New York: 8 partners (Thomas Bell, Barrie Covit, Olga Gutman, Jason Herman, Jonathan Karen, Glenn Sarno, David Shevlin, Michael Wolitzer), 1 senior counsel (Lisa Klar), 1 counsel (Chi Shum) Palo Alto: 1 partner (Michael Nooney) London: 2 partners (Jason Glover, Gareth Earl) Los Angeles: 1 partner (Thomas Wuchenich) Hong Kong: 1 partner (Philip Culhane), 1 counsel (Adam Furber) Levels of associates:

ERISA: New York – 1 partner (Brian Robbins), 2 senior counsel (Jeanne Annarumma and Jamin Koslowe) Key relationship clients: Actis, Apax Partners, BC Partners, Blackstone, Bridgepoint, BTG, Carlyle, Centerbridge, CVC, EQT, First Reserve, Hellman & Friedman, JC Flowers, KKR, Lexington, Macquarie, Morgan Stanley, New Mountain, Oaktree, Patria, Platinum Equity, Silver Lake, Vista Equity Recent publishable mandates: Ongoing: Representing Yunfeng Capital, a Chinabased private equity sponsor, in connection with the formation and launch of two special purpose investment funds, in connection with Yunfeng’s investment in Alibaba Group Holdings Limited Ongoing: Representing Blackstone in the formation of Blackstone Real Estate Partners Europe IV and Blackstone Real Estate Partners Asia Ongoing: Representing BTG in the formation of BTG Pactual Brazil Infrastructure Fund II

Information not provided by ﬁrm

Ongoing: Representing Carlyle in the formation of Carlyle Asia Partners IV and Carlyle Realty Partners VII

Diversity statistics:

Turnover rate – notable departures and hires:

Information not provided by ﬁrm

2012: Gareth Earl was promoted to partner in the London ofﬁce. David Shevlin was promoted to partner in the New York ofﬁce

Ancillary practice support in key locations: Tax: New York – 6 partners (John Creed, Marcy Geller, John Hart, Gary Mandel, Nancy Mehlman, Jonathan Goldstein) Palo Alto – 1 partner (Katharine Moir) London – 1 counsel (Meredith Jones)

Asset classes worked on: Buyout, distressed debt/special situations and other credit-oriented, fund of funds, energy/Infrastructure/ natural resources, mezzanine, real estate, secondaries, venture/growth capital, hedge funds

lawdragon insights his is an outﬁt that represents the biggest

CVC Capital Partners, Aquiline Capital Partners and New

funds sponsors in raising the biggest funds.

Mountain Capital.

Notwithstanding the current climate

Bell has been instrumental in developing inno-

leading many practices to diversify their

vative strategies that have pushed some of his marquee

oﬀering, the group at Simpson Thacher

clients forward, such as advising on many of the key play-

holds the enviable position of being selective over the

ers’ moves into diﬀerent asset classes and other multi-

mandates it chooses to accept.

disciplinary strategies.

The group has been busy raising mega funds for sponsors,

such as CVC VI - the largest European private equity fund to be raised since Lehman. The fund is still in market, and has target commitments of $15 billion. Despite its obvious expertise in advising the industry’s biggest and most significant players, the team has a lesser-known expertise in advising smaller and first–time funds, particularly where creativity and innovation is needed. Matters that typically attract the team are those that satisfy its taste for devising new products, such as the ‘early bird’ discount incentive mechanism, or a liquidity mechanism for providing security in connection with fund borrowings by clients. As a compliment to this eye for innovation, clients also drew Insights’ attention to the group’s willingness to become “quite involved in negotiations: they are willing to make things happen and push things forward – to reach out proactively to investors and take the role of bad guy or lightning rod.” The group has an unusually deep bench, fielding 13 partners and a raft of associates in New York, London, Palo Alto, Los Angeles and Hong Kong. The 2010 hire of Jason Glover from Clifford Chance is widely credited by the market with expanding the London offering exponentially, and balancing what clients assured us was a “fantastic enterprise over in the States.” Such eyecatching comprehensive coverage of both Europe and the U.S. is a draw for general counsel, one of who pointed out “it’s quite a comfort for a lot of funds – half their investors might be from the U.S. - a significant chunk - and it’s a more mature marketplace.” [ THOMAS BELL ] PARTNER – NEW YORK “The man who wrote the book on many of the innovations in the practice” Spearheading Simpson Thacher’s practice from New York is Tom Bell. A long-time funds specialist and eminence, he has been a key figure in building the practice up to its current stature. His clients have included the likes of The Carlyle Group,

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MANDATES • Carlyle Partners VI in raising total commitments of $13 billion, • Carlyle in its $1.38 Billion Carlyle Energy Mezzanine Opportunities Fund • Aquiline Financial Services Fund II • Macquarie Infrastructure Partners III, LP • New Mountain Partners IV [ MICHAEL WOLITZER ] PARTNER – NEW YORK “Savvy and technically excellent” Michael Wolitzer is universally acknowledged to be another pillar of the U.S. practice, and is a familiar face in fund formations for sponsors such as Apax Partners, Blackstone and Silver Lake. He advised Blackstone on its industrychanging IPO. Clients laud him for “outstanding commercial expertise” and “original and creative thinking.” MANDATES • Blackstone Capital Partners VI • Blackstone Real Estate Partners VII • Silver Lake Partners IV • AEA Mezzanine III • AllianceBernstein U.S. Real Estate Partners [ BARRIE COVIT ] PARTNER – NEW YORK “Knows his stuﬀ and works hard.” Barrie Covit is a regular face on matters for names such as Carlyle, KKR and First Reserve Corporation. Clients note his standing in the market, and ﬁnd him quite accessible – “he’s always available when you have a quick question.” MANDATES • Carlyle Global Financial Services Partners II • Carlyle Partners VI, in raising total commitments of $13 billion • Carlyle U.S. Equity Opportunity Fund, LP www.lawdragon.com

• Corsair IV Financial Services Capital Partners [ OLGA GUTMAN ] PARTNER – NEW YORK “Terrific experience and expertise in both private equity funds and hedge funds, which is a very rare commodity.” Olga Gutman is a leading authority on hedge funds, private equity funds and investment management matters. She is a familiar face on matters for sponsors such as CIFC Corp., Citigroup, and Palladium Equity Partners. She is also regularly involved in strategic investments and M&A transactions involving asset management firms. Clients praise her for “her practical and thoughtful advice when dealing with unique issues” and “her thorough knowledge of the business, her ability to find creative solutions.” MANDATES • Palladium Equity Partners IV, LP • TSG6 LP • Multiple funds for Citigroup Alternative Investments [ JASON HERMAN ] PARTNER – NEW YORK “A thoughtful problem solver with unparalleled responsiveness.” Jason Herman is an up-and-coming partner in Simpson Thacher’s New York office, regularly representing notable sponsors such as KKR, Morgan Stanley and GSO/Blackstone. In recent years, he has been responsible for substantial real estate and credit focused fundraisings. Sources in the industry speak highly of his “impressive combination of technical and commercial expertise and practical knowledge of the market.” He’s lauded by clients as a “trusted and relied-upon advisor.” MANDATES • KKR in its inaugural real estate fund, KKR Real Estate Partners Americas • Blackstone/GSO in its GSO Capital Solutions Fund II, in raising total commitments of $5.125 billion • A&M Capital Partners in its first buyout fund

[ JONATHAN KAREN ] PARTNER – NEW YORK “An oasis of calm during frenetic moments.” One of the firm’s rising stars, Jonathan Karen has led on a range of significant private equity fund formations. He also counsels investment firms on a mix of matters involving private investment funds, including internal economic arrangements, M&A transactions and strategic investments, joint ventures and spin-outs. He is singled out by clients for being “extremely commercial and able to close the deal.” MANDATES • Silver Lake Partners in its $10 billion fund Silver Lake Partners IV • Stonepeak Infrastructure Partners in Stonepeak Infrastructure Fund, in raising total commitments of of $1.65 billion • Blackstone in Blackstone Real Estate Partners VII, which raised total commitments of $13.3 billion [ GLENN SARNO ] PARTNER – NEW YORK Glenn Sarno was based in the London office for two years, but returned to New York, where he chairs the New York City Bar Association Committee on Private Investment Funds. He has represented large and prominent sponsors of private funds globally across a wide variety of asset classes and product types. He has frequently advised on the creation and expansion of private fund businesses within larger financial institutions as well as for boutique sponsors, and has much experience with house-team arrangements, spin-outs, funds-of-funds, and listed alternative asset products. He has formed some of the largest private funds operating in Asia and Latin America. MANDATES • BTG Pactual’s Private Equity, Infrastructure and Real Estate Funds • Carlyle’s Asian Buyout Funds, as well as its U.S. and Asian Real Estate Funds • Arlon U.S. and Latin American Food & Agriculture Funds

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lawdragon insights [ LISA KLAR ] SENIOR COUNSEL – NEW YORK “Her application of legal insights and industry knowledge is outstanding.” Lisa Klar advises funds clients on regulation. Her integration within the fund group is a deﬁnite advantage for clients who comment on how useful her perspective can be when thorny issues come up. Clients are also impressed by her 17 years of experience as a compliance oﬃcer at many well-known investment managers. [ JOHN HART ] PARTNER – NEW YORK “If he hasn’t seen it, it’s not worth thinking about” John Hart heads up the tax group at

ties, foundations, hospitals and cultural institutions with respect to their private fund investments, and is widely considered to be a leading practitioner in the endowment advisory arena. He is also highly knowledgeable in tax law. One client credited him for being “the ‘go-to’ lawyer for endowments and foundations.” [ MICHAEL NOONEY ] PARTNER – PALO ALTO “Practical and commercial advice and deep market knowledge.” One of the leading corporate lawyers in California, Michael Nooney is co-founder of and a partner in the firm’s Palo Alto office. He represents both established and newly-formed private equity and hedge fund firms, such as American Industrial Partners, Hellman & Friedman and Indaba Capital, in all aspects

Simpson and has handled most of the

of their businesses.

tax issues that come up for marquee client Blackstone in

MANDATES

its fund work. He’s considered the “go-to person” for tax structuring in real estate funds by sources in the industry. One client detailed how he can “clearly explain all the issues both technically and commercially.” [ DAVID SHEVLIN ] PARTNER – NEW YORK “A stellar and thorough advocate for the institutional investor.” David Shevlin is Vice Chair of the American Bar Association’s Section of Taxation Committee on Exempt Organizations, as well as currently heading up Simpson Thacher’s Exempt Organiza-

Partners VII • Sycamore Partners in its $1 billion inaugural fund • Technology Crossover Ventures in Technology Crossover Ventures Fund VIII [ TOM WUCHENICH ] PARTNER – LOS ANGELES “Gets stuff done, and gets it done in the way that we care about” Tom Wuchenich is one of the partners in the firm’s Palo Alto office whose experience spans both fund formation issues and capital markets transactions. He has used both aspects in his advice to

PHOTO BY INIGOCIA/DREAMSTIME.COM

tions group. He counsels a number of endowed universi-

• Hellman & Friedman in Hellman & Friedman Capital

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Oaktree Capital Partners on its IPO. MANDATES • Platinum Equity Capital Partners III • KSL Capital for KSL Capital Partners III and KSL Capital Partners Credit Opportunities Fund • Oaktree Capital Partners on Oaktree Strategic Credit Strategy [ JOHN CREED ] PARTNER – NEW YORK “Innovative, insightful tax advice” John Creed is another tax partner who works with a range of private equity clients including Carlyle and New Mountain. He’s lauded for his “insight and ability to clearly explain the relevant issues.” He is also singled out by clients for his “innovation matched with peerless technical expertise.” [ JASON GLOVER ] PARTNER - LONDON “I’m just conﬁdent that if there’s a problem, he’ll be able to solve if I can’t.” In London, Jason Glover’s is the name on everyone’s lips, and time and time again, in-house counsel told Insights that the group’s

then COO of what is now Duke Street Capital in past lives) are clearly in evidence to in-house lawyers, who also remark upon his decisiveness – “you are never left in any doubt of Jason’s view.” These qualities have made him a go-to partner and a charismatic front-man for Simpson Thacher’s European fund formation group. MANDATES • EQT in its Infrastructure II fundraising, which closed in January 2013 with total commitments of $2.65 billion • APAX in the formation of its VIII fund, with a target of $12.5 billion. [ GARETH EARL ] PARTNER – LONDON “Understands the commercial drivers of a private equity ﬁrm.” Having joined Simpson Thacher in 2010 from Doughty Hanson & Co, Gareth Earl was made partner at the end of 2012. As with Jason, clients ﬁnd his experience of working in-house attractive, telling Insights: “He has a much better understanding of what it’s like from our point of view.” This client added, “he can see a few steps ahead, where something might go. This gives him a little bit of an edge for sure.” Earl has been busy making his name by appearing on

success is “testament to Jason personally in building

most of the London group’s ﬂagship mandates alongside

that team and fronting it on those big calls that clients

Jason, but most notably led the team acting on the market-

demand.” In style, “he is always going to impress and

leading CVC VI fund raising.

dazzle,” but equally, clients remark upon his pioneering approach, and knack of solving problems creatively, but in such a way that “often simplicity is the key.” His commerciality, and ﬁrst-hand experience of the private equity industry (as operations director for AIFAL,

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MANDATES • CVC Capital Partners in its fundraising for CVC VI • Actis 4 in its formation of the sizeable emerging markets fund, with a target of $3.5 billion

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lawdragon insights [ SEEMA SHAH ] ASSOCIATE – LONDON “The next Jason Glover, in my eyes.” Hot on the heels of the London part-

[ PHILIP CULHANE ] PARTNER – HONG KONG Outstanding knowledge of the Asia market

ners is senior associate Seema Shah, who

Philip Culhane co-heads Simpson

has caught the eye of clients as being

Thacher’s Asia private funds team, co-

“head and shoulders above” many in the sector. Her ap-

managing a group that also spans the ﬁrm’s Beijing and

proach is said to combine thoughtfulness with conﬁdence,

Tokyo oﬃces. He has longstanding experience of private

and she exhibits an appealing “mix of intelligence, com-

funds work in Asia, having lived in Beijing, and Taipei,

merciality and understanding things quickly.” In-house

Taiwan, developing conversational Mandarin skills. He

counsel tip her for the top, and opine that “Jason, Gareth

has been based in Hong Kong since 1998, representing

and Seema are a really tough combination to beat.”

emerging and middle-market fund managers raising their

MANDATES • CVC VI fund raising [ SAM WILSON ] ASSOCIATE – LONDON “Advice is complete and well thoughtthrough.” Another name to watch in the Simpson Thacher London operation is senior associate Sam Wilson. He is beginning to carve out an impressive name for himself, appearing frequently on behalf of signiﬁcant sponsors, who single him out for commendation as “competent, technically able and very responsive.” MANDATES • Apax in its VIII fund formation • Arle Capital Partners in connection with its Candover 2001, 2005 and 2008 funds • Actis 4 fund raising [ AMY FOX ] ASSOCIATE – LONDON Detail-focused associate “You probably need an Amy in your life,” said one client about Amy Fox, commenting on her thorough approach. MANDATES • Actis 4 in its formation of the sizeable emerging markets fund, with a target of $3.5 billion • Arle Capital Partners in connection with its Candover 2001, 2005 and 2008 funds

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ﬁrst funds, alongside work for established fund managers. Clients can draw on his breadth of experience in the marketplace, and call upon him especially when “something is complex or ambiguous – that’s when Phil gets involved.” MANDATES • Representing Yunfeng Capital on the formation and launch of two special purpose investment funds connected to Yunfeng’s investment in Alibaba Group Holdings Limited [ ADAM FURBER ] COUNSEL – HONG KONG Experienced and responsive Working alongside Phil Culhane in Hong Kong in co-heading the Asia practice is counsel Adam Furber. He, too, has lengthy experience of the terrain, having been based in the region for nearly a decade. In-house counsel approve of his style of “trying to respond quickly with work in process rather than trying to ﬁnalize everything,” making him a good part of a team. MANDATES • Advising Yunfeng Capital on the formation and launch of two special purpose investment funds connected to Yunfeng’s investment in Alibaba Group Holdings Limited [ DAVID AZCUE ] ASSOCIATE – BEIJING Meticulous and forthright David Azcue impresses clients with his dedicated representation.

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PRACTICE SPOTLIGHT INDUSTRY OVERVIEW AND DEVELOPMENT

[ INSIGHTS ]

TOM BELL SIMPSON THACHER (NEW YORK)

BY CATHERINE MCGREGOR

Tom Bell of Simpson Thacher & Bartlett is one of the godfathers of the private fund formation legal practice. He specializes in investment management and oversees Simpson Thacher’s preeminent private funds practice. Among his clients are Aquiline Capital Partners, The Carlyle Group, JC Flowers, Macquarie, Morgan Stanley, New Mountain Capital and Sterling Investment Partners. He spoke to Insights about the evolution many of his fund manager clients have undergone from single-assetclass players to multi-platform strategies. JANUARY 2014 Lawdragon: Your firm has worked with many of the fund managers that have a multi-platform strategy. I wanted to get a sense of the process that they have been through – particularly the legal issues that come up? Tom Bell: With a number of our clients, the emergence of a multi-disciplined firm has at first been a gradual organic process, and then as it has gathered speed, it has often evolved into one that has been driven via assetmanagement M&A activity. Historically, it started out as a more organic development – the two pioneers were Carlyle and Blackstone. In the ‘80s, if you looked at a typical firm it had a stand-alone strategy, and in Blackstone’s case, it had its buyout fund. In the early ‘90s, Blackstone started its real estate business. And there were quite a lot of investors who were skeptical of the move – some said they would never invest in a fund at a firm that did more than one private equity strategy as some felt you could not be good at more than one thing at a time in this industry. Looking back, that seems a silly view as GE makes more than light bulbs! However, many of the [fund] firms also shared this fear of a multi-platform strategy. Carlyle was a little different from many others in that the vision of the three founders from the beginning was to grow

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into a multi-disciplined firm. They always looked at the traditional institutional money management business (in which firms typically manage a wide variety of strategies) and said ‘there’s no reason we can’t do this at Carlyle in the alternatives space’. For all the reasons it made sense for institutional money managers to be diversified, the guys at Carlyle felt it also made sense for that to be the goal they were shooting for as well. LD: Can you detail a bit more about the risks of the multi-platform strategy? TB: At the outset, people were aware that one of the big risks was: can you walk, talk and chew bubble gum at the same time? It was essentially an issue about management capacity and the allocation of management resources. Even today, it’s a significant business issue for our clients. Sometimes, as firms diversify, they can struggle to replicate in their new strategies the success they have had in their original asset class. Blackstone has been unusually successful in terms of making money outside of its historical core of private equity. When firms started to diversify, though, it was a mix of design and opportunism. LD: When it was opportunistic, how much was it about bringing great managers on board or acquiring teams or was it more about ‘this is an area or an asset class we should move into’ – that investors seem interested in this strategy? TB: You can find examples of both – one is more supply driven and one more market driven. I think recently it has been more of the latter – firms saying “there’s a real business opportunity here to do this strategy and it makes sense in our overall business model, so I’ll go out and find a team to do it.” There are multiple perspectives that clients have on this. One is that there’s underutilized expertise in the firm. Private equity firms develop specialized knowledge in an industry like healthcare, telecoms, etc., but it may be that the number of actionable transactions in the industry in any given year is quite limited. The managers put a lot of time, effort and resources into developing capability in a lawdragon

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PRACTICE SPOTLIGHT INDUSTRY OVERVIEW AND DEVELOPMENT

sector but may not be able to use it to do a deal in the sector.

incentivize, both teams.

They want to think how they can use their resources more

LD: One of the fundamental legal issues that arises

eﬀectively by launching a complementary strategy that

in a multi-disciplined ﬁrm is you have a lot of diﬀerent

leverages oﬀ of those resources. For many of our clients,

products – how do you allocate investment opportunities

that is why they’ve developed debt arms or mezzanine

among the funds and the products? TB: There’s no easy answer to that, but it is something

funds, for example. From Carlyle’s perspective, they thought that having

that both managers and investors worry about. For in-

these multiple products would bring hybrid opportunities.

stance, if I invest in a sponsor’s mezzanine fund, I don’t

For example, I know this sounds very Old World, but there

want to be shut out of an attractive mezzanine ﬁnancing

was a phenomenon in the ‘90s called “Internet Hotels,”

opportunity just because the sponsor decides to pursue

which were buildings housing the computers and other

the situation through its buyout fund instead. Or, again, a

equipment used to provide Internet services for other

transaction might fall within the investment objective of

businesses. Carlyle did several of these deals because they

more than one fund, so that, as an example, a waste man-

had a real estate fund team that knew a lot about the real

agement business could be acquired by either a sponsor’s

estate side of these projects and they had a telecom team

general purpose private equity fund or by its infrastructure

within their private equity fund business that knew a lot

fund. Opportunity allocation is one of the fundamental conﬂicts that being a multi-disciplined ﬁrm gives rise to.

“PEOPLE WERE AWARE THAT ONE OF THE BIG RISKS WA S: C AN YOU WALK , TALK AND CHE W BUBBLE GUM AT THE SA ME TIME?” —TO M BEL L

LD: Where are the key rewards for the investors in a multi-disciplined firm strategy? TB: I think the fundamental benefit for investors is they can one-stop shop. If you are an outfit like CALPERs (the California Public Employees’ Retirement System), one of the big problems you have is you have a very large program and you have to put a lot of dollars out the door. Yet you’re very resource-constrained in terms of staff, so you don’t have the ability to monitor an unlimited number of manager relations. Trying to pick who you want your managers to be in different strategies on an individual

about the telecom aspects of these deals. So they were able

basis is very time consuming. Very quickly you end up

to make several successful investments in these Internet

having too many managers to manage and it’s not practical.

Hotels. A lot of their competitors could not do it because

PHOTO GREG ENDRIES

they didn’t have the combined knowledge.

What the CALPERs of the world are increasingly looking for is that they want to develop a broad relationship with

As another example, Carlyle bought Fiat Avio, an Italian

a ﬁrm like Carlyle, Blackstone, KKR, Apollo or whomever

aeronautics and defense company, with its U.S. and EU

and they want to use the ﬁrm across the board for real

buyout funds. The transaction was made possible for two

estate; U.S. buyouts; energy; and infrastructure funds;

reasons – Carlyle had an Italian team within its European

European Private Equity; Asian Private Equity; other

buyout fund, so it had the local connection to source and

emerging markets; and so on – they want to have a broad

consummate the deal. It also had an incredible knowledge

multi-product relationship that’s cost eﬃcient to manage.

of the aeronautics and defense industry through its U.S.

In addition, having a sizeable overall relationship gives

buyout fund and the deals Carlyle had done in this industry

the investor the leverage to negotiate for lower fees and

there. So the combination of these two capabilities gave it

better terms. In this respect, the alternatives business is no

a huge leg up on everyone else and Carlyle was able to do

diﬀerent than the traditional asset-management business.

that deal when others could not. From Carlyle’s perspective,

Why do so many businesses use Fidelity and its fund

it showed the synergies and opportunities that resulted

platform for their retirement plans? It’s not because ev-

from having multiple products and strategies.

ery single Fidelity mutual fund is a stand-out, but rather

Both funds participated in the deal and you needed both

because in general Fidelity funds are a very safe and reli-

funds to participate in order to get carry for, and thereby

able product. The same is true of Carlyle. One secret of

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lawdragon insights its success in fundraising for a lot of diﬀerent products is

have that conversation anymore.

a function of the fact people derive comfort from having

That’s often a downside of diversiﬁcation for manag-

an overall relationship with Carlyle. I wouldn’t say that

ers. But we still have a couple of clients that have created

every one of its funds is an absolutely top performer, but

multiple products and that still want everyone free to talk

if you look at the overall performance – it’s a great choice.

to one another without information barriers. For example,

LD: What about the advantages for the sponsors?

one client has a big private equity fund, a shareholder

TB: For the fund managers, the beneﬁts are twofold.

activist hedge fund and a debt arm. They don’t have any

First there are synergies from an investment point of

information walls because they want everybody to talk to

view. Being involved in this product or strategy can create

each other about their investments. But sometimes the

market knowledge and opportunities for another product.

people in hedge fund and debt arm are very frustrated by

But that also leads to a lot of legal complications, often

their inability to trade in the securities of companies about

to do with inside information. So, to illustrate, a ﬁrm like Carlyle is constantly getting access to non-public information in its private-equity investing arm at the same time

which the PE side of the house has inside information. LD: The synergies associated with investment activities are one advantage; what else is attractive to managers?

that its debt arm and its various hedge fund arms are

TB: Diversiﬁcation of your income stream is a major

trading in the securities of those companies in the public

beneﬁt of this strategy – alternative assets, in general, are

market. You have to have information barriers established

very volatile in terms of income because of the uncertain

to prevent abuse and misuse of non-public information.

timing of carried interest and performance fees in com-

That creates challenges for these organizations, and I have

parison to your typical asset-management business, which,

seen an evolution over time of how these organizations

in general, is a very stable revenue business.

handle this issue.

If you are a single-product manager this volatility sits

At Blackstone and at Carlyle, when they started out,

hard because you are so subject to factors beyond your

they had no walls; if one part of the ﬁrm had non-public

control. For instance, if you launched a fundraising in

information, the rest of the ﬁrm was restricted from trad-

late 2008, that was right at the cusp of the ﬁnancial cri-

ing in securities of that issuer. Then, as the ﬁrm evolved,

sis – you were going to get clobbered in your fundraising

the public-market side of the house said “we just can’t live

and that was completely beyond your control. Clients do

with that – you private equity guys are creating too many

have some choice about when they go to market, but a lot

problems for us.” At ﬁrst, when they voiced those concerns,

of times clients just get caught in a market downdraft.

they were not a big enough part of the ﬁrm to impact the

If you have a lot of diﬀerent products and strategies,

decision. But as they became more and more important,

that provides a much more stable base for your business.

they began to have the leverage within the institution to

These ﬁrms can also go public – you can’t really take a

establish an information barrier.

single-strategy ﬁrm public; you can’t even take a two- or

LD: Did those barriers create any disadvantages?

three-strategy ﬁrm public; you need a broadly diversiﬁed

TB: Certainly, in that the diﬀerent sides of the house

base. But the stability it gives to our clients from having

didn’t have free access to one another’s expertise any longer. One of the advantages that, say, Carlyle had in the beginning was that when the private-equity guys were

multiple products is perceived as a real advantage. LD: How does the multi-strategy platform aﬀect your clients’ ability to attract the range of talent needed?

going to ﬁnance a deal, they could go in and talk to the

TB: In many respects, the distribution machines that

CLO (Collateralized Loan Obligation) guys about what

our clients have created for their multi-strategy platforms

was going on in the leveraged ﬁnance market and get very

are very attractive to bringing in talent. If, for example,

good market intelligence about how a speciﬁc transaction

I’m a talented infrastructure investment professional

would be received in the leveraged ﬁnance market.

seeking to launch a fund, one option is that I can set up

Those conversations are much more restricted with

my own ﬁrm, but then I have to ﬁnd investors on my own,

information barriers – if you are doing a buyout of Con-

perhaps needing to sell a piece of my ﬁrm to an anchor

solidated Boondoggle, you want to be able to say “Here’s

investor, etc., and it takes a long time to do, with many

the business, here are our proposed terms for the ﬁnanc-

attempted startups failing in the process. It’s wonderful

ing, how’s the market going to react to that?” It is hard to

if you can be successful in doing it – there’s no one more

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PRACTICE SPOTLIGHT INDUSTRY OVERVIEW AND DEVELOPMENT

successful in this space than someone who sets up fund

acquisitions and Carlyle in the case of Claren Road, ESG,

one, raises capital, sees it through to a home run track

DGAM, Alpinvest and others, they have all been able to do

record and then successfully raises fund two. That’s the

acquisitions to buy diﬀerent managers and to ﬁll out their

way to establish dynastic wealth. But if you’re more risk

platforms, which they wouldn’t have been able to do - or do

averse, what you want to do is go to a place like Carlyle

as eﬀectively - if they weren’t publicly traded.

and set up their infrastructure team and fund and tap into

Secondly, you can use stock as a compensation tool. If I’m

this amazing global fundraising machine that on your own

a privately held PE manager, I can give an executive carry in

you would never get access to.

the fund he manages and align him with the success of that

A ﬁrst-time fund manager would probably never be able

fund. But these publicly traded companies can give stock,

to get a meeting with large institutional investors such as

which also vests their professionals in the success of the

CALPERs or the China Investment Corporation. But with

publicly traded ﬁrm as a whole. Giving publicly traded stock

the help of the Carlyle marketing arm, you have a seat at

as an incentivization technique can be a way of aligning the

the table. Repeatedly, these multi-strategy ﬁrms have been

interests of separate executives across strategies who can

able to launch products that attract incredibly talented

be very siloed in how they think about their business. In

people on the backs of a distribution machine that is only

addition, even in times when the well may be dry in terms

economic to have if you are a multi-strategy program.

of carry or cash bonuses, you can still give people stock.

Your typical single-strategy PE ﬁrm –its business model

Given the volatility of income ﬂows in each silo, that can

doesn’t support a fulltime marketing function. Big multi-

work well. For example, a ﬁrm’s Asian buyout fund may not

strategy ﬁrms like Carlyle can aﬀord that, and it’s a com-

be generating carry; but the executives might actually be

petitive advantage.

doing well under the circumstances and the ﬁrm wants to

LD: What’s the advantage for ﬁrms and their investors of going public or not?

reward them. The ﬁrm can do that via stock even if there’s no carry or cash in that product line at the moment.

TB: I think observers have often been pretty skeptical

Finally, being public gives you a means of raising capital

about whether going public would work out well for these

for the ﬁrm in the public markets. This is becoming more

ﬁrms, but I think the verdicts are coming in solidly in favor

important as the alternatives business is becoming capital

of ﬁrms that are public; while there are disadvantages too,

intensive, both in terms of the working capital it takes

in the main it’s a competitive advantage.

to run the business and in terms of the growing “house”

LD: What are the main disadvantages?

capital commitment that is needed for funds.

TB: Well there’s the whole raft of legal and compliance

In my opinion, these competitive advantages of being

issues and costs. Secondly, there’s the bureaucracy that

public have generally outweighed the disadvantages. I

being public imposes onto you and it changes the way that

think this is, more broadly, part of the consolidation trend

the ﬁrm makes decisions: Sarbanes-Oxley etc. Thirdly, fund

that you’re seeing in the alternatives industry.

investors legitimately worry that investment profession-

LD: The ﬁ nancial crisis seemed to produce a lot of

als will become more interested in the ﬁrm’s stock price

consolidation and less experimentation in terms of hybrid

than in the success of the funds they are managing. That

structures in the industry – do you think that is likely to

encourages actions focused on bolstering the stock price

change as the industry shows signs of increased buoyancy?

but may not have the eﬀect of making the ﬁrm better at

TB: If you look at any industry, it eventually goes through

making money for its fund investors.

a maturation phase and it consolidates - and the alter-

LD: What’s an example of that?

natives industry is in that phase in my view. There are

TB: Well, bulking up assets under management because

cyclical factors, such as the ﬁnancial crisis, that can cre-

assets under management are a very important valuation

ate noise masking the trend. In this regard, I think the

metric for the stock of these public companies. That might

recent buoyancy in PE fundraising and deal activity has

be good for the stock, but is it good for the investor clients

created the deceptive impression that the consolidation

of the funds? But being public also has countervailing

trend is diminishing. However, the underlying secular

advantages. Firstly, you can use publicly traded stock as

forces behind the increased pace of consolidation have

an acquisition currency. Blackstone in the case of GSO

only temporarily abated, and essentially the long-term

(Capital Partners, its credit business), KKR in some of its

factors spurring consolidation are still there.

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

[ INSIGHTS ]

JASON GLOVER SIMPSON THACHER (LONDON)

BY CATHERINE MCGREGOR

Jason Glover is among the elite members of the private funds bar, and an illustrious member of Simpson Thacher’s leagueleading practice in London. He brings to the boardroom several years of experience working in private equity, as operations director for AIFAL, then the secondlargest private equity fund in Asia. He has represented many of the most prominent European and developing market private equity firms in structuring complex global funds, including Actis, Apax, Arle, Barclays Infrastructure, BC Partners, Bridgepoint, CVC, EQT and FSN Capital. He spoke with Insights about a technique he developed, the early-bird discount. NOVEMBER 2013 Lawdragon: I’d really like to just start from the beginning, if you could talk me through how it first came about? How long was it in development and how difficult was it to get buy-in from the business? Jason Glover: The background to this was that we

PHOTO BY MICHAEL WHARLEY

were appointed to act for BC at the end of 2009, so it was

return on a fund to be, 15% say, or 12% net, and you’re only being asked to pay Euribor plus 4% for coming in late – that’s 5%. If you think of the dynamic, I’m looking for a 15% return, I get charged 5% for coming in a year late – you’d come in late every time: it’s the smart thing to do. LD: Why did Lehman make it different? JG: Well, before Lehman, what happened was that the successful funds always tended to be oversubscribed. general partners were able to say to investors, if you come in at first closing you’ll get your full allocation, but afterwards you’ll be scaled back. There was always an attraction in being in at first close. BC’s view was that in the unknown of post-Lehman it was going to be very hard to be credible in the market and say to people, “If you don’t come in at first close you won’t get your full allocation.” Indeed, they didn’t know at the time whether they would get to their target and hard cap size. So we collectively considered the various options that could be used to incentivize investors and there were a number of things that we came up with. There’s a lot of talk in the marketplace about various mechanisms that can be used, but I’m quite skeptical about which ones actually work. Many mechanisms such as preferred co-investment for fi rst close investors come at a cost to subsequent close investors. The beauty of early bird was that it was at the cost of BC–

relatively soon after Lehman [Brothers’ 2008 collapse] and

subsequent close investors weren’t losing by this. If you

the credit crisis, and there really hadn’t been any major

were a later closing investor, you weren’t losing something

global PE fundraising that had taken place since that date.

because something was given to the ﬁrst close investor

BC was very conscious that they were going out into the

that would have otherwise belonged to you. We quickly

marketplace as the ﬁrst of the big funds.

established that it was probably quite an attractive incen-

The starting point for all of this is why would you, as an

tive mechanism. In terms of the buy-in from the business,

investor, go into a fund at ﬁrst closing? If you wait until

I think that the business generally understood the principal

ﬁnal closing, there are many advantages - the portfolio has

of why it was a good thing. The trick was then working

done deals, you’ve got another year of track record to look

out where do we set the thresholds, and what threshold;

at, and most importantly of all, traditionally by coming in

how much do you discount the fees; would the discount

late you don’t actually miss out on any deals. The rate that

level serve as a suﬃcient incentive, and also, who was it

you’re charged for coming in late (the equalization pay-

going to encourage?

ment) is set at a relatively low level. Historically that’s been

LD: Did BC Partners ﬂoat the idea with any investors,

Libor or Euribor, or U.S. prime-plus somewhere between

or potential investors to see what market reception would

2% and 4%. So if you look at what you’re envisaging your

be like?

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“ WE FELT IT WA S V ERY IMPORTANT THEN, TO HAV E A MECHANISM WHERE SOMEONE C AN SAY, ‘ WELL , WE C AN WAIT BU T WE WILL LOSE THIS BENEFIT.’ SO I THINK THAT PEOPLE RE ALLY MISUNDERS TOO D WH Y E ARLY BIRD WA S SUCH A GOOD THING AND WH Y IT WA S SUCCESSFUL .”

but the issue was there was some money that needed to be invested in 2010, so they had a very small initial closing in 2010. But we didn’t want that to be the first close. But equally we were concerned that if the first close was just a completely open-ended period, how do you persuade someone that they’ve got to get a move on and come in? The concept that BC came up with, which I think was a very good one, was to draw a distinction between the initial close and the first close, but to say the first close would be no more than 60 days after the initial close. What it did was to give the flexibility to be able to have a series of rolling closings. The way the provision worked is to say it will be on a date no more than 60 days from the initial

— JA SO N GLOV ER

closing but at the GP’s discretion. That way, the only way

JG: There was discussion that took place with investors-

you could guarantee getting the early bird was if you were

they were obviously keen to gauge what investor reaction

in at initial close.

would be to it. We were also looking at the early bird at the

The harder thing was the technical side of it. The rebate

same time for EQT on their fund; it was clearly something

mechanism we thought would be relatively easy to do, that

that needed a dialogue with investors. Investors gener-

you would just say – you as an investor, you pay the full

ally were very receptive, because they understood it was

management fee, and then we’ll pay you some back. Very

important to get momentum for the fund raise to happen.

simple. But there were two consequences of that: one we

As an investor you were being given a choice: Do you

anticipated and one we didn’t. The ﬁrst was, the whole

want the early bird by participating at ﬁrst close - you

distribution waterfall is based upon carry representing

don’t have to have it, you can go with the normal terms.

20% of proﬁt. If I draw down from you, say, £1.5 million

Would you resent somebody getting slightly better terms

($2.47 million) for your management fee and I give you

than you? I think the general view within the market-

a discount, an early-bird rebate back of, say, £50,000

place was no - if people are wiling to come in at ﬁrst close,

($82,000), for the purpose of the waterfall, as things stand,

then as long as others were given the ability from a time

you’ll be treated as having put in £1.5 million, and we’ve

perspective to participate that was ﬁne. Where I think it

got to return £1.5 million before we start earning carry.

was always going to be a problem was that if you had the

But I’ve already given you £50,000 back, so that can’t be

early-bird discount concept announced a couple of weeks

right. So we had to put in a mechanism that said that the

before the ﬁrst close because that would clearly rule out

rebate element was then going to be taken oﬀ what we

anybody that wasn’t already in the process. And then you

owed you in the distribution waterfall, so in eﬀect, carry

might get some resentment, where people would say ‘if

would be paid slightly earlier. That was one tricky part.

only I’d have known you were going to do it, I would have

The other tricky part was that some investors said they

moved quicker.’ So we quickly established that it needed

were concerned about receiving a rebate because it might

to be a term that was upfront in the marketing documents

be seen as some sort of kickback. So we had to restructure

on day one.

for some of the investors, and since BC Partners, we’ve

LD: How complex was it actually structuring the terms?

changed the technology, so nowadays, we tend to do it

Was there any precedent in terms of any other fund classes

more as a true discount mechanism. The way it works in

that you’d come across? Or was it really working from

most cases is that if a ﬁrst close investor’s contribution

scratch?

to the management fee is £1.5 million pre-early bird dis-

JG: It was more complex than it might seem. At ﬁrst glance, what’s diﬃcult about it? It’s just a discount.

count and the discount is say £50,000, then the investor is required to put in £1.45 million ($2.5 million), and the

But there were two levels of complexity. The ﬁrst was,

GP will put in the extra £50,000. That’s the technology

what do we mean by ﬁrst close for these purposes? If you

that we’ve developed as to how that works, and again, you

take the BC fund, they had a ﬁrst close in February 2011,

then have to build on top of that, making sure that for the

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

purposes of the waterfall you are only treated as putting

other people have used it as well. It’s not always easy to

in £1.45 million.

know who’s been using it and who hasn’t. I think the

It sounds quite simple, but actually as a concept, if you look at the side-letter mechanism where all this is included,

misunderstand why it’s such a signiﬁcant beneﬁt.

it’s 2 or 3 pages of quite detailed technical drafting to

It’s important for encouraging momentum, which of

actually get the thing to work correctly. We got there in

course is a good thing. You’ve really got to look at why it

the end though. I think although the provision has been

creates the momentum. What we think happens at the

pored over by lots of investors now, because we’ve obviously

investor level is that investors go to their investment

done it on a number of funds, I think it’s fair to say that we

committee and say, “I’ve got this proposal I’d like you to

get very few comments on it. It would be hard to say it’s

consider.” But we think in an environment where there’s

become a boilerplate item, but it’s one of those things that

uncertainty, particularly, you know, 12, 18 months ago

investors will now have seen before, they understand the

when there was uncertainty over the euro, an investment

concept, and we don’t have to spend too much time on it.

committee is minded to say, ‘well is there any why reason

LD: Is it ever going to become so boiler plate that it

we need to do this now, why can’t we wait two or three

would move out of the side letter into the actual main fund?

months’? And we felt it was very important then, to have

JG: There’s no real reason why it has to be solely in the

a mechanism where someone can say, “Well we can wait

side letter. I think the reason why it probably makes more

but we will lose this beneﬁt.” So I think that people really

sense for it to be in the side-letter is because the way in

misunderstood why early bird was such a good thing and

which we structure the limited partnership agreement,

why it was successful.

there are other provisions that apply to all investors equally.

The other thing as well is that the early bird obviously

So anything that’s being given to an investor which is

has a cost attached to it. But I don’t think that cost is

diﬀerent to somebody else – if it’s a reporting require-

as great as people think, in part because the early bird

ment or something like that – you’ve got a choice. You

doesn’t necessarily apply to all management fees to be

put it in the LPA, in which case you’ve included detailed

charged. But secondly because the largest investors will

information that is relevant to most investors. Or do you

insist upon a reduced fee anyway, so if they are coming in

just stick it in a side letter. We think that the side letter is

at ﬁrst close, their mindset is, “I’m only going to pay this

structurally the easiest thing to do. I mean, all of these

level of fee for this type of fund because of its size.” Let’s

things are disclosed. It’s not as if it’s going in a side letter

just say it’s a mega-billion fund, and a 1.5% management

because somehow this is hidden. It’s not hidden at all, it’s

fee is what’s on the cover of the document. But you’ll have

fully disclosed, everybody sees it, it’s just as a mechanical

investors coming in and saying, “I’m not going to pay

thing. We think that the best thing to do is to have an LPA

more than 1.4%.” So that is what they’ll pay. How you get

that applies to all of the partners and then, if there are

there doesn’t really matter. So, the fact that you might be

certain provisions that only apply to some but not all of

given, for sake of argument, 10 basis points oﬀ for being

them, you’d cover it in a side letter. But technically you

in at ﬁrst close, they don’t say, “Well, I’ll take that as well

could cover it in the main document.

on top of my discount,” they just say, “I want to pay 1.4%.”

LD: Are you aware of many other GPs whom you don’t

PHOTO BY ISTOCK.COM/PASHAIGNATOV

reason it hasn’t become standard is because people really

So they would have paid that anyway. So really the early

act for, and therefore other law ﬁrms now using this tech-

bird is often a cost incurred for those investors who aren’t

nology: do you think it’s become market standard?

large enough to get a volume discount. For a lot of funds

JG: I don’t think it’s become market standard. I have read that both Permira and Cinven used it, and I’m sure

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that might be only half the amounts that are raised at ﬁrst close. So it’s not quite as expensive as people think.

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SKADDEN, ARPS, SLATE, MEAGHER & FLOM A ﬁrm where you can address any part of the world and they have some kind of a relationship that you can trade. It’s a broad, well-networked, well-connected ﬁrm

Summary of firm structure: Skadden and Affiliates is a global partnership of approximately 1,800 lawyers in 22 offices, serving clients in every major financial center through a one firm, team approach. Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation United States: 10 partners (John Caccia, Heather Cruz, Thomas DeCapo, David Eisman, Lawrence Frishman, Philip Harris, Michael Hoffman, Richard Prins, Anastasia Rockas, James Schell), 5 counsel (Kevin Hardy, Kristine Koren, Leslie Lowenbraun, Aubry Smith, Deborah Tuchman) United Kingdom: 1 partner (Stephen Sims), 1 counsel (Patrick Brandt) Levels of associates: Information not provided by firm Diversity statistics: GENDER Partners

2 out of 10 are women = 20%

Counsel

3 out of 5 are women = 60%

MINORITY

Regulatory: Skadden regularly advises on relevant regulatory matters Key relationship clients: Apollo Investment Corp., Citi Capital, BlackRock, Fortress Investment Group, Amherst and Stone Point, Ardian (formerly AXA Private Equity), Deutsche Asset & Wealth Management, Graycliff Partners, Multiple Leading Sovereign Wealth Funds, Peter Thiel (including Clarium Capital, Valar, and Mithril), Walter Investment Management Corp Recent publishable mandates: Ongoing: Representing Walter Investment Management Corp. in connection with the formation and capitalization of a vehicle to invest in certain U.S. real estate opportunities Ongoing: Providing comprehensive, high-level advice to BlackRock regarding the impact of Dodd-Frank. Ongoing: Representing Tremont and certain other investors with respect to matters arising from the Bernard Madoff fraud Ongoing: Advising Graycliff Partners on its organization and with respect to Graycliff Brazil Investors, a $200 million Brazilian private equity fund

Partners

0 out of 10 = 0%

Turnover rate – notable departures and hires:

Counsel

0 out of 3 = 0%

2012: Stephen Sims joined as a partner from Macfarlanes

Ancillary practice support in key locations: Tax: United States – 8 partners (Pamela Lawrence Endreny, Edward Gonzalez, Victor Hollender, W. Kirk Wallace, David Levy, Diana Lopo, Sally Thurston, Gavin White)

PHOTO BY MIHOW/FREEIMAGES.COM

ERISA: United States – 1 partner (Regina Olshan), 1 counsel (David Olstein)

United Kingdom – 2 partners (James Anderson, Tim Sanders)

Asset classes worked on: Buyout, co-investment, debt investments, distressed debt/special situations, fund of funds, funds targeting speciﬁc geographies, infrastructure, real estate, spin outs, venture capital/growth equity

lawdragon insights lients approve of the commerciality of

and capitalization of a new private equity venture

this M&A behemoth’s funds oﬀering,

capital fund

and explain to Insights that “they look

• Deutsche Bank/Deutsche Asset and Wealth

at it more from a business point of view

Management in forming a global real estate debt-

rather than from a legal point of view.”

This is true of the team on both sides of the Atlantic – in the U.S., where the group is concentrated in New York, with

related fund • Amherst and Stone Point regarding the formation of a U.S. real estate private equity fund

additional presence in Boston and Chicago; and in the UK,

• Public Sector Pension Investment Board (PSP) in

where the hire of Stephen Sims from Macfarlanes in early

connection with the formation and capitalization

2012 was a canny move to break into the European funds

of multiple investment partnerships, structured as

market. The group is well-placed to represent sponsors

private equity, hedge and hybrid funds

with sights on the international market. It’s the breadth of Skadden’s investment management practice that impresses. The group has a strong mix of

[ HEATHER CRUZ ] PARTNER – NEW YORK

expertise across asset classes, including in the retail- and

Heather Cruz advises investment advi-

hedge-fund space, in addition to a strong suit in private

sors and investment banks on structur-

equity funds. The wider investment management group is

ing and distributing private investment

involved in the formation, ﬁnancing, sale and acquisition

products, including hedge funds, private

of a full range of investment management businesses,

equity funds and funds-of-funds in both spheres. She also

as well as advising ﬁ nancial institutions and others

provides advice in connection with the establishment, op-

regarding ﬁnancial products. The private funds group

eration and sale of investment advisor and broker-dealer

acts for sponsors and investors in forming and raising all

businesses, as well as in regulatory matters arising from

types of private equity and hedge funds, including buyout,

Dodd-Frank, the U.S. Investment Advisers Act, the U.S.

venture capital, fund-of-funds, real estate, co-investment,

Investment Company Act and FINRA regulations. Her

infrastructure, debt and distressed, multi-strategy and

clients also include investors.

special situations funds. The team also has a ﬁrm grasp of the regulatory landscape, where Insights was told that “there’s no question they are very well-connected to Washington.” [ JOHN CACCIA ] PARTNER – NEW YORK “Takes more than a business interest – he takes a real personal interest.” John Caccia focuses on acting for sponsors in structuring, negotiating and capitalizing private funds - both U.S.-based and oﬀshore - in addition to forming related investment advisory and management entities. He covers a range of fund strategies, including leveraged buyout, venture, fund-of-funds, growth equity, mezzanine and distressed-asset mandates. He also acts for investor clients. Clients also value his advice in regulatory matters. MANDATES • The founding principals of Trailstone LLC, in the formation and capitalization of Trailstone LLC • Peter Thiel and Clarium Capital on the formation 112 / lawdragon

MANDATES • BlackRock regarding Dodd-Frank and private fundrelated matters • Citi Capital Advisors on the launch of the CLO Opportunities Fund • Silver Creek Capital Management, LLC, in connection with the launch of Silver Creek Credit Opportunities IV Fund [ PHILIP HARRIS ] PARTNER – NEW YORK Philip Harris is viewed as a leader in the hedge fund space. He also acts for issuers, underwriters and investment advisers in connection with registered and private offerings and structuring private equity and registered funds, as well as customized offshore products, and regulatory advice. Crisis assistance is a particular niche of his, and he has advised clients in relation to conflicts of interest, investigations and litigations arising from a variety of situations, including the financial crisis, and Madoff. On top of his asset www.lawdragon.com

management work, he also advises on related corporate and securities matters. MANDATES • Advent Capital, in connection with master feeder fund, Advent Global Opportunity Fund • The founding principals of Trailstone, LLC, in the formation and capitalization of Trailstone, LLC [ JAMES SCHELL ] PARTNER – NEW YORK Experienced and long-standing member of the New York group

JAMES ANDERSON PARTNER – LONDON James Anderson co-heads the ﬁrm’s Europe Private Capital Practice, and has special expertise in providing tax advice in the private equity and funds sphere. There, he advises managers and multinationals on the establishment and operation of funds, as well as other investment vehicles, including SFOCs, and private capital arrangements for fund principals and others. He is vice chair of the Tax Committee for the Alternative Investment Management Association (AIMA), and is also

James Schell has been in the business

a member of the HMRC/HMT consultation group for the

for many years, and heads the interdisci-

fund management sector in the UK. He also undertakes

plinary team within Skadden’s investment management

capital markets transactional matters.

group, focusing on private equity funds. He has acted for sponsors, investors and placement agents in private equity fund formation. MANDATES • Graycliﬀ Partners regarding the formation of Graycliﬀ

MANDATES • Two leading Sovereign Wealth Funds as sponsors and investors in a private infrastructure fund • BlackRock on its acquisition of real estate business MGPA

Brazil Investors, a $200 million Brazilian private equity fund and Graycliﬀ Mezzanine II LP, a U.S. middle market mezzanine investment fund • Mars in connection with a $175 million multi-credit strategy tailored investment vehicle that will be managed by BlackRock [ STEPHEN SIMS ] PARTNER – LONDON Stephen Sims is a much-admired ﬁgure in the London private funds world, and, as such, was a strong hire for the launch of Skadden’s European Investment Management Group. He heads that team now, and practices structuring, establishment, fundraising, and operation of investment funds for fund managers and investors – particularly private equity and real estate funds. He is also active in fund-related M&A, and

PHOTO BY ISTOCK.COM/NIKADA

secondary transactions. MANDATES • Banco Itau in developing a global compliance program with respect to investment management matters, as well as securities and bank regulatory matters • UNIQA Versicherungen AG in selling a portfolio of private fund interests on the secondary market • BlackRock on its acquisition of MGPA

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PRACTICE SPOTLIGHT INVESTORS AND FUNDRAISING

[ INSIGHTS ] BY CATHERINE MCGREGOR

John Caccia, a New York-based partner in Skadden’s investment management group, represents both sponsors and investors in his private funds practice. Recently, his practice has focused on mandates that reﬂect opportunities created by the change in the markets after the 2007-2008 global ﬁnancial crisis. In this interview, he discusses how the investor landscape for private funds has changed and developed since then.

performance issues with the strategies they had pursued prior to 2008, or evolved their views on paying fees for the level of performance achieved. In the wake of those issues, the market has witnessed an evolution in their activities that reﬂects their own particular experiences and conclusions. For example, some typically passive investors who would more commonly participate in transactions as limited partners have become more active as direct investors and indeed as sponsors of deals. You have probably seen the press coverage related to some of these developments – one example is the province of Ontario pension groups that have been perhaps most

FEBRUARY 2014

visibly at the forefront in accelerating direct investing

Lawdragon: Can you detail how investors have changed

in this regard. Other investors de-emphasized certain

in the private funds world since the ﬁnancial crisis? John Caccia: There have been many changes in their approach. Those changes reﬂect changes not only to the composition of the investor community, but also the pos-

categories or altered their focus or deﬁned priorities on certain economic points like fees. Other investors “stayed the course” and made few or no changes to strategy. LD: Are you seeing some overall trends?

ture and strategies of investors in this period. Obviously,

JC: Yes. For example, some sovereign wealth groups

in the wake of regulatory reforms and similar develop-

have begun to become more active as direct investors,

ments, certain ﬁnancial institutions, such as banks, have

co-investors and sponsors of private vehicles, and in this

reduced, cut back substantially or almost entirely their

way are capitalizing on their access to transactions and

commitments to private equity and hedge funds.

opportunities as well as expertise and market knowledge.

A number of teams have spun out or migrated from

In addition, during the period since 2007, a notable

using bank platforms for their business, and as a result

number of sophisticated, large family-oﬃce or super high-

a number of newly conﬁgured asset-management ﬁrms

net worth individual capital sources have become more

have grown out of the crisis. Some investors have focused

prominent and visible in the private funds world. As with

on investing in those new managers.

sovereign wealth groups, these sources have been present

Also, certain types of products, which had funding

in the marketplace for some time, but have in recent years

diﬃculties through the crisis, such as certain types of

been visible on a broader range of prominent transactions

funds of funds, have become somewhat less popular – or

and perhaps also are becoming thought leaders relevant to

at least recognized as riskier than had previously been

deﬁning market terms and global best-practice standards.

thought – and they have thus been a little less common as investors in private fund vehicles. PHOTO BY LAURA BARISONZI

JOHN CACCIA SKADDEN (NEW YORK)

LD: It sounds as though there has been a signiﬁcant strategic shift by some investors.

Last, you have seen a number of investor groups going through crises or shake-ups of sorts, whether crises associated with regulatory or legal issues, such as some state pension groups, or as a result of performance issues.

JC: Absolutely. This period has witnessed a substan-

These groups have in some cases altered their investment

tial and quite individualized evolution in the strategies

strategy dramatically, and sought to revise the terms on

of many large institutional investors, such as sovereign

which they invest. This in turn has in some cases put

wealth funds and super high-net worth individuals and

strain on relationships with traditional sponsor partners.

family oﬃces. These institutions in some cases confronted

LD: With fund terms, are there issues that character-

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lawdragon insights ize diﬀerent investor groups as to what they focus on in

a large number of “funds of one” and managed accounts,

negotiations?

which aﬀorded investors those sorts of protections. In

JC: It is absolutely the case that diﬀerent types of in-

many ways, this also suited managers, because it allowed

vestors focus on diﬀerent issues with diﬀerent levels of

managers to grow relationships, which oﬀer large capital

priority, and even within any one category of investor

commitments at a time when the diﬃculties and timelines

there can be very diﬀerent postures towards those same

associated with launching ﬂagship, pooled vehicles were

issues. It is also the case that groups or teams that are

very evident.

housed within a single institutional investor can have

This process also caused a range of responses with

notable diﬀerences of opinion as to strategies for doing

respect to co-investment opportunities. Investors have

deals with managers.

always traditionally liked and sought co-investment oppor-

For example, some groups at investor institutions are

tunities for many reasons, including the reason that they

focused on driving down fees. Other groups within the

represented no-fee, no-carry opportunities that brought

same institution may take a somewhat diﬀerent view,

down their overall cost of capital deployment. At the same

noting that putting too much emphasis on fee negotia-

time, the less successful large club transactions that dated

tions can limit the number of good managers with whom

from the period of the global ﬁnancial crisis have reminded

a relationship can be built.

investors of the potential risks and costs of those types

Almost all sophisticated investors are focused on matters

of transactions. As a result, the parties have developed

such as compliance, conﬁdentiality, most favored nations

a range of diﬀerent strategies to price and or oﬀer co-

protections and other similar basic protections. However,

investment opportunities in conjunction with fundraising.

sovereign investors, governmental investors and certain

These include fee-based co-investment products, on the

family oﬃces are often particularly focused on reputa-

one hand, and more traditional open-ended discretion-

tional issues such as privacy issues and accompanying

ary oﬀering of co-investment opportunities on a no-fee,

protections, such as name usage controls.

no-carry basis, on the other.

By contrast, institutional groups that are focused on

In between, one can ﬁnd a range of highly negotiated

developing internal capacities will also often negotiate

arrangements designed to ensure that key, possibly larger

rights and privileges that relate to more general informa-

investors have priority access at a reasonable “price” to

tion sharing, training opportunities and market awareness

an opportunity ﬂow that includes the best co-investment

opportunities.

opportunities that the manager will expect to see.

Investors for whom deal-flow opportunities are very important – and I note that group may span the communities of sovereign investors, high net-worth groups, – can be more focused on co-investment rights and other protections that will afford them priority opportunities to participate in transactions. LD: How is the shift from a traditional institutional investor base changing what managers do and what sorts of products they offer? JC: I think that the approach of investors to the world that they confronted post-global financial crisis emphasized protection against the risks that they had experienced

“SOME TYPICALLY PASSIVE INVESTORS WHO WOULD MORE COMMONLY PARTICIPATE IN TRANSACTIONS AS LIMITED PARTNERS HAVE BECOME MORE ACTIVE AS DIRECT INVESTORS AND INDEED AS SPONSORS OF DEALS.” — J O H N C ACCI A

in the 2007 to 2009 period. For example, investors did not want to be exposed to the risks associated with non-

LD: Much of the new regulation fund managers are deal-

performance by other investors in pooled vehicles, and

ing with, such as Dodd-Frank, the Alternative Investment

they were very focused on the beneﬁts of structures of-

Fund Managers Directive (AIFMD), etc., is characterized

fering tailored terms that suited their speciﬁc strategies

as being for investors’ beneﬁt. How beneﬁcial do most

and objectives.

investors ﬁnd it in practice?

One of the outcomes of this development was the rise in 116 / lawdragon

JC: The objectives of regulations such as Dodd Frank www.lawdragon.com

PHOTO BY ISTOCK.COM/NIKADA

PRACTICE SPOTLIGHT INVESTORS AND FUNDRAISING

and AIFMD may be debatable and I think an argument

LD: Obviously, many investors gained traction post-

can well be made that their core objectives relate to pro-

ﬁnancial crisis as fundraising became harder. As fundrais-

tection of the marketplace rather than protection of any

ing picks up again, is this ground being lost?

constituency or market participant or group. That said,

JC: In my view, the market has generally remained

I would certainly agree that losses suﬀered by certain

trifurcated during the period of the ﬁnancial crisis and

institutional investor groups were indeed generally in the

through today. By this I mean that, ﬁrst, many success-

minds of those who sponsored these regulatory initiatives.

ful managers and prominent investors have preserved

I think it is diﬃcult to draw a direct line between these

the terms on which they have invested together in prior

regulatory developments and investor protections. While

periods through the ﬁnancial crisis. These terms included

it is the case that recent regulatory developments have

some above-market terms. At the same time, while it has

required additional manager registration, additional

been harder for certain managers with limited or more

manager disclosure, and greater oversight with respect

minor issues around their track records or otherwise to

to certain market participants, institutional investors had

raise capital, the improvement in overall market condi-

already developed a range of diligence and other protocols

tions has not substantially changed their prospects in the

designed to address many of these risks. Furthermore,

current environment. Third, with respect to sponsors

institutional investors have been forced to consider the

with substantial issues around their proposed investment

increased costs for managers of these regulations. One

program or otherwise, it remains the case that fundrais-

example would be the not-insigniﬁcant costs associated

ing is quite challenging. For example, some large funds

with ﬁlings on Form PF, an example of mandatory report-

have been raised quite swiftly of late on terms relatively

ing for certain investment management structures, which

in line with predecessor funds.

in some cases managers and limited partners have negotiated to be for the account of limited partners.

That said, the size of each of the three categories has ﬂuctuated over the past few years. I think it is also reason-

I think it is still early in the life of these crisis-era regu-

able to expect that sponsors with exceptional performance

lations to evaluate their ability to protect institutional

will continue to have the negotiating leverage to oﬀer

investors – and indeed the health of the marketplace as

products at above-market terms, even if those oﬀerings

a whole – at a reasonable cost.

are – as always – not so common.

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WEIL GOTSHAL & MANGES

Incredibly responsive and knowledgeable – they’re always there for us Summary of ﬁrm structure:

Key relationship clients

Weil is an American law firm founded in 1931 with headquarters in New York. The firm is a partnership and has 20 offices and 1,200 attorneys across the US, Europe and Asia.

8 Miles, The Abraaj Group, Aleph Partners, American Securities, Berkshire Partners, BNP Paribas/Glennmont Partners, Brookﬁeld Asset Management, CCMP Capital Advisors, Credit Suisse Group, Dubai International Capital, The Gores Group, Goldman Sachs, Hastings Funds Management, Lindsay Goldberg, Perella Weinberg Partners Group, Providence Equity Partners, WL Ross & Co.

Size of fund practice globally – numbers of partners and associates who spend 50% or more of their time on fund formation: Weil’s global private funds group comprises more than 60 full-time funds lawyers practicing across our primary funds ofﬁce network of New York, Boston, London and Hong Kong (Details of lawyers not provided by ﬁrm) Levels of associates: Weil has more than 40 associates in the global Fund Formation practice across New York, Boston, London and Hong Kong Diversity statistics: GENDER Partners

0 out of 15 are women = 0%

Associates

17 out of 44 are women = 39%

TOTAL

17 out of 59 are women = 29%

MINORITY Partners

1 out of 10 = 10% [ethnicity is not tracked for ﬁve partners based in London and Hong Kong]

Associates TOTAL

5 out of 37 = 14%

[ethnicity has not been tracked for the seven associates based in Hong Kong]

6 out of 47 = 13%

[Total does not count partners in London and Hong Kong and associates in Hong Kong]

Ancillary practice support in key locations: Regulatory: London – 3 associates

PHOTO BY ISTOCK.COM/221A

U.S. – 1 partner; 1 associate

Recent publishable mandates: 2014: Representing IDFC Alternatives Ltd., a unit of Indian infrastructure finance company IDFC Ltd., in connection with the formation of its second India-focused infrastructure fund, which is targeting $1 billion in commitments 2013: Advised Graphite Capital Management LLP on the close of its eighth fund, Graphite Capital Partners VIII, with commitments of $761 million, at the time the largest fund investing solely in UK companies to be raised in the preceding five years 2013: Represented Crow Holdings Capital Partners, LLC in connection with the close of Crow Holdings Realty Partners VI, LP, a $1 billion real estate fund focused on investing in a diversified portfolio of US real estate assets 2012: Represented American Securities LLC in connection with the formation of American Securities Partners VI, LP, $3.6 billion private equity fund Turnover rate – notable departures and hires: 2014: Albert Cho joined Weil’s Hong Kong office from Kirkland & Ellis, and Nick Benson left Weil to join Latham & Watkins 2011: Ed Gander, Nigel Clark and Nick Benson, as well as tax partner Jonathan Kandel, left Clifford Chance to join Weil, Gotshal & Manges. They were followed a short time later by associates Stephen Fox and David Irvine

Tax: U.S. – 2 partners; 5 associates

Asset classes worked on:

London – 1 partner; 3 associates

Buyout, infrastructure, real estate, distressed debt/ special situations, mezzanine, secondaries, fund of funds

ERISA/Beneﬁts: U.S. – 1 partner; 1 counsel

lawdragon insights eil is hungry, perhaps due to the

“easy-going” manner. As one told Insights, “while the goal

fact that executive partner Barry

is to get the best terms we can, it needs to be done with

Wolf is himself a funds man. The

a good amount of tact.”

ﬁrm has been busy amassing a substantial private-fund forma-

tion practice with a global footprint, encompassing a 60 lawyer-strong presence in New York, Boston, London

and Hong Kong. The New York office is traditionally the cornerstone office for private funds, although the London team catapulted itself into the spotlight in 2011 with the high-profile lateral hires of funds lawyers Ed Gander, Nick

Benson, Nigel Clark and tax lawyer Jonathan Kandel from Clifford Chance. Under the watchful eye of the market, the group has continued to build and win clients, and defends its European flagpole with gusto (although Nick Benson recently announced his move to Latham & Watkins). The group represents funds at the top end and middle market, and has a niche in establishing and fundraising for first-time managers. General counsel value the “really deep knowledge of the industry” of team members, as well as their ability to be “helpfully practical and not just literal – fund documents are not always black and white.” The group’s expertise spans structuring buyout, real estate, infrastructure, mezzanine, hedge, distressed debt, special situations and secondary funds as well as funds-of-funds. It also acts for select investors, which enables it to “take a

MANDATES • Brookfield Asset Management Inc on the formation of Brookfield Infrastructure Fund II (BIF II) [ JONATHON SOLER ] PARTNER – NEW YORK “An effective negotiator who is pragmatic, thoughtful and comes up with creative solutions to problems.” Jonathon Soler also co-heads the practice from New York. He acts for private equity fund sponsors, as well as select investors; examples include Lindsay Goldberg, Perella Weinberg Partners and CCMP Capital. Clients underscored to Insights how responsive he is – “Jonathon always has time for us. I never worry if I can find him” – as well as how in-tune he is with their business – “He has a great understanding of how we think about things.” MANDATES • Crow Holdings Capital Partners on the formation of Crow Holdings Realty Partners VI

nicely-balanced view of General Partners’ versus Limited

[ JEFFREY TABAK ] PARTNER – NEW YORK

Partners’ interests.”

One of the founding members of the

In-house counsel also like the firm’s “well-integrated” approach, and get the sense that the attorneys “work together as a holistic team rather than as separate groups.” The firm’s tax and regulatory functions would seem to be particularly key, and in the latter arena, the group can draw upon expertise in the Investment Advisers Act of 1940, Dodd-Frank, Volcker Rule issues, and the EU’s Alternative Investment Fund Managers Directive. [ SHUKIE GROSSMAN ] PARTNER – NEW YORK “Understands that it’s the lawyer’s job to find the path towards getting the commercial deal done.” Shukie Grossman co-heads the practice. A former member of the SEC’s Division of Investment Management, Grossman acts for fund sponsors in the formation of domestic and offshore private equity funds. Clients find him accessible, practical, and commend his

120 / lawdragon

private funds practice One of the founders of the ﬁrm’s private funds practice, Jeﬀ rey Tabak continues to advise funds and their sponsors in structuring and acquisitions and dispositions of investments. He also acts for institutional investors; practices corporate and securities law; and is the vice chairman of the ABA Federal Securities Subcommittee on Hedge Funds. [ ROBERT FRASTAI ] PARTNER – NEW YORK “Really great at in-depth tax issues – can explain things really clearly.” Tax specialist Robert Frastai concentrates on advising sponsors and investors on tax issues connected to the formation and investments of private equity funds. These have included leveraged buyout, venture capital, infrastructure, real estate opportunity, and secondary funds. He also advises on transactions www.lawdragon.com

connected to limited liability companies, partnerships

2003 and 2006, and having led Cliﬀord Chance’s private

and other pass-through entities.

funds group from 2010. In 2011, along with three other

MANDATES • Crow Holdings Capital Partners on the formation of Crow Holdings Realty Partners VI [ STEPHANIE SRULOWITZ ] ASSOCIATE – NEW YORK “She has a comprehensive grasp of our fundraising activities.” Stephanie Srulowitz provides fund formation, structuring and negotiation advice to fund sponsors, as well as representation in connection with acquisition and disposition of investments. She also acts for institutional investors. General counsel say that they “never hesitate to call Stephanie,” and approve of her skills in dealing with new limited partners. MANDATES • Berkshire Partners LLC regarding the closing of Berkshire Fund VIII, LP [ DAVID KREISLER ] PARTNER – BOSTON David Kreisler is one of the original partners in Weil Gotshal’s Boston oﬃce, and continues to practice fund formation from this base. His clients include sponsors and their funds, which he represents on organization and administration, plus in connection with forming limited partnerships and limited liability companies. MANDATES

Clifford Chance partners, he made a splash by upping sticks to Weil Gotshal to spearhead its fledgling London private funds offering. Under his leadership, the group has accumulated a steady stream of clients and mandates. His expertise includes forming and structuring private equity, real estate, infrastructure, debt funds and funds-of-funds. MANDATES • Graphite Capital on the $795 million close of Graphite Capital Partners VIII [ NIGEL CLARK ] PARTNER - LONDON A fellow Clifford Chance émigré, Nigel Clark enjoys a global practice, although he has special expertise in matters involving the Middle East. He acts for managers and investors in connection with forming a full range of private funds, including buyout, infrastructure, real estate, growth, debt, hedge and special situations funds. He also represents fund managers with regard to governance, internal management issues and incentivization plans. [ JONATHAN KANDEL ] PARTNER – LONDON “Razor sharp.” In addition to leading the London tax team, ex-Clifford Chance partner Jonathan Kandel brings his specialist tax knowledge to the funds table. Here, he has impressed inhouse counsel by “firing off ideas that went way beyond

• HM Capital Partners (HM Capital) and Kainos Capital,

tax and tax structuring, and having deep insights” into

LLC, (Kainos) in the sale of certain portfolio compa-

the private funds sphere. Here, he has provided tax advice

nies of Sector Performance Fund, LP, to investment

to fund managers forming a range of funds, including

partnerships

private equity, real estate, infrastructure, and debt funds.

• Berkshire Partners, LLC, in closing Berkshire Fund VIII, LP [ ED GANDER ] PARTNER – LONDON “Gregarious and carries a lot of personality.” Ed Gander heads the London private funds team, and also co-heads the ﬁrm’s global group. His is an illustrious pedigree, having run his own private equity ﬁrm, ViaNova Capital, between www.lawdragon.com

He also represents sovereign and state-owned investors, and in connection with spin-outs, secondary transactions, co-investment, carried interest and other incentivization schemes, and fund restructuring. MANDATES • BC Partners on the ﬁnal close of its $9 billion buyout fund, BC European Capital IX (“BCEC IX”) (begun while at Cliﬀord Chance, completed at Weil) • BC Partners on closing two co-investments in portfolio acquisitions by BCEC IX - Suddenlink and HSI lawdragon

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lawdragon insights • Graphite Capital on the $795 million close of Graphite Capital Partners VIII [ STEPHEN FOX ] SENIOR ASSOCIATE – LONDON “Has the capacity to grow into a very good leading funds partner.” Stephen Fox is vaunted by many as a rising star in the firm’s London office, rated for his technical skills, and ability to “come up with some really clever solutions on things.” After completing a secondment at Apax, the senior associate came over from Clifford Chance, in a high-profile lateral move. He’s also been previously seconded to China Investment Corporation in Bejing. He advises on fund formation and operation, on a broad selection of fund strategies, such as buyout, growth, emerging market, venture capital, real estate, infrastructure, debt and special situations, and also acts for investors. MANDATES • BC Partners on the final close of its $9 billion buyout fund, BC European Capital IX (“BCEC IX”) (begun while at Clifford Chance, completed at Weil) • BC Partners in the closing of two co-investments in portfolio acquisitions by BCEC IX - Suddenlink and HSI • Graphite Capital on the $795 million close of Graphite Capital Partners VIII [ JAMES GEE ] SENIOR ASSOCIATE – LONDON Another Clifford Chance alumnus, senior associate James Gee established the firm’s private funds regulatory practice. He has advised funds clients in connection with AIFMD and other regulatory issues, and sits on the European Private Equity and Ven-

alongside fund formation and private equity transactional activities. [ JOHN FADELY ] PARTNER – HONG KONG & BEIJING Based in Hong Kong and Beijing, John Fadely is the key figure in the firm’s Asia funds practice. He has a sophisticated understanding of the marketplace, having practiced there for 14 years, principally in Hong Kong and Tokyo, and he is fluent in Mandarin Chinese and accomplished in Japanese. He provides fund formation advice for sponsors based both in and outside of Asia in connection with private equity, real estate and infrastructure funds, and is particularly well versed in funds focused on China, those investing in Japan, and also Pan-Asia funds. Structuring management arrangements, joint venture investment vehicles, co-investment vehicles and carried interest matters also fall within his remit, as does establishing asset management businesses, restructuring distressed funds and acting for investors. [ ALBERT CHO ] PARTNER – HONG KONG The arrival of Albert Cho from Kirkland & Ellis is sure to be a boost to the Hong Kong team. He has been based in Hong Kong since 2009, having moved there from New York, and is experienced in fund formations centred on Asia-Pacific investments; he has been notably active in Korea. Alongside his work for emerging markets general partners, he is accomplished in representing U.S. and European sponsors, particularly in forming funds looking to invest in the Asia-Pacific region. His clients include a range of sponsors, in matters including counseling on operational and structuring issues and regulatory compliance.

PHOTO BY ISTOCK.COM/RADIST

ture Capital Association (EVCA) Technical Committee. He

also plays a key role in the group’s investor-side practice,

122 / lawdragon

www.lawdragon.com

PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

[ INSIGHTS ]

ED GANDER & JONATHAN KANDEL WEIL (LONDON)

BY CATHERINE MCGREGOR

Ed Gander and Jonathan Kandel are partners in the private funds practice at Weil. Gander is head of Weil’s London private funds group and has more than 15 years experience raising funds for a host of leading managers, including serving as founder and managing partner of his own private equity business, ViaNova Capital, between 2003 and 2006. Head of the London tax team, Kandel advises on the structuring of funds for a number of leading managers. Insights spoke to the duo about the current state of fund structuring. M ARCH 2014 Lawdragon: Has the classic limited partnership agreement fund outlived its usefulness to today’s alternative fund managers? Jonathan Kandel: The fundraising market is getting much more sophisticated. If you’re a single strategy private equity firm, you use a classic private equity strategy. But if that private equity firm is then building a platform and is looking to put a credit fund, or a real estate fund or an infrastructure fund alongside it, they often default to the private equity model. Different fund strategies don’t work in the same way and the fund economics are driven off the underlying product, rather than what the market expects. The products that get off the ground are the ones that actually mesh together the underlying cash flows that the assets produce and the appropriate risk management weighting that a manager can bring to it; that’s how the cash flows work and that’s how the managers get paid. Therefore the two and twenty compensation model sometimes works off a preferred return that’s eight percent, sometimes it works off a preferred return that’s nine, ten or an even higher percentage, sometimes it works off a split income and capital (i.e., total return) waterfall. Until you actually understand the kind of money that’s coming up from these deals, you can’t work out what the manager

www.lawdragon.com

should be paid and at what level the investors will say, “You know what guys? You go and collect whatever it is that’s right but until you reach this benchmark, you’re not going to share in the upside.” That’s an evolution in people’s thinking that we’ve seen. LD: The actual fund structuring document in many cases that’s being used is very much the standard LPA and people are just sort of bolting bits on to it – is that essentially what you see happening? JK: That’s right. There is an element still in the industry of “We really only understand one model.” Sometimes it’s the law firm, sometimes it’s the manager that says, “Oh, we’ve got our form LPA and investors are familiar with it.” But if the product doesn’t work, keeping the same form of LPA is not a good reason to put a product together that doesn’t sell. LD: Are managers starting with a clean slate in terms of fund documentation? Ed Gander: Managers should start from a clean slate even if they’re raising fund five, six, seven or eight. They may end up back similar to the position they’re currently at, or in a completely different position purely dependent upon the structure that they need for that specific product, and also for the particular teams within the manager that are running it. They may have completely different people in completely different jurisdictions marketing the product to completely different investors, looking for a completely different type of return. The structuring and the commercial-product building has to be entirely bespoke to both the managers and the investors that they’re going to offer to. JK: I would also say that as a manager you need to look around at the competition now, and work out where your product is differentiated, if indeed it should be differentiated. EG: The private equity space is quite vanilla still. JK: It is vanilla. By contrast, the infrastructure funds space sits across a much wider range of product, from the PE fund-style product, through the hybrid longer-dated products to the listed end of the market and the openended funds. The reason you’ve got this wide spectrum lawdragon

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lawdragon insights

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

“FUNDS THAT HAVE HISTORICALLY INVESTED IN WHAT IS NOW THE ALTERNATIVE ASSET SPACE NEED TO BECOME INCRE ASINGLY LIQUID. THAT LIQUIDIT Y CAN R ANGE FROM LISTED SECURITIES TO OTHER FORMS OF REDEMPTION RIGHTS THAT HAVE VARYING DEGREES OF LIQUID IT Y, SO AGAIN IT’S A MORE NUANCED DISCUSSION THAN JUST WILL MANAGERS BECOME LISTED.” — ED G A N D ER of products is because if you look down at the assets, and actually start thinking about, well what is it this asset is

with the kind of assets you think you’re going to buy in

going to do for this investor class – what are we matching

your investment period, perhaps even make more money.

here? In infrastructure, you’re matching in some cases 25

EG: But with investors being happier.

years of inﬂation-linked cash ﬂows to the liabilities of state

JK: Investors are happy because you’re aligned with

or government pension funds, or sovereign wealth investors.

them. You’ve given them something where they are pro-

That is what the manager is being paid to do – match

tected on the economics, and they’re only paying you for

assets and investors and get paid by reference to outperformance. Out-performance on that dynamic might

fantastic performance. EG: The old debate has been about should we or should

be an inﬂation-ﬂoating rate benchmark and if so, that’s

we not give fee discounts for ﬁrst close - there’s been a lot

the way you structure your economics. But if you get that

of press on that since the global ﬁnancial crash. Whereas

right, the manager, when he models his underlying deals,

actually, the real debate, with the clever managers and the

gets paid to out-perform. If they just have a PE model and

clever investors, is how do you optimize alignment so that

you pick some number based on your last fund document,

both LPs and GPs can make more money in as-close-to-as

then the manager’s economics will probably never work

possible 100 percent aligned fashioned. And the old model

for the manager or its investors.

of “two and twenty” with an argument about fee discounts

EG: That leads to team instability. Really the market’s becoming much more bifurcated now, away from the

or no fee discounts is now quite dated, at the clever end of the spectrum, on both the LP and the GP side.

limited partnership model which was around ten years

LD: So there really is bifurcation on both sides, man-

ago, to a whole range of diﬀerent alternative structural

agers and LPs in terms of sophistication, with the sort of

options that didn’t previously exist, and weren’t really

people who have these diverse platforms and are willing to

thought about. In the future there will still be a place for

enter into structuring that isn’t more of a boilerplate. Will

the LP two-and-twenty model but that will be a minority

there always be a place in the market for one-strategy type

of cases rather than the majority - which was the case

managers, or is it increasingly going to be more complex

even probably ﬁve years ago. This thinking applies to real

and multi-faceted?

estate, and it applies to credit, as Jonathan was saying, to a whole range of funds outside of the LP model. JK: I would say, even in real estate, where private equity

PHOTO BY MICHAEL WHARLEY

management fee discount but actually, under the scenarios,

JK: I’m struggling to think of a manager that is not thinking about, or has not executed a second strategy. There will be some in the mid-market but…

real estate funds, the opportunistic funds - the biggest

EG: It’s very diﬃcult if you only think about the old

raisers in private equity real estate, which deliver the net

vanilla, boilerplate structure. It’s very diﬃcult to know

IRR (internal rate of return) somewhere between 15 and

how these managers in ﬁve years time will have the so-

20 but in order to get that product to work investors are

phistication of oﬀering that will appeal to the new breed of

playing with the preferred return and the catch-up. If you

investors who are investing across the whole board – across

model that out, the interrelation between the pref, the

all the alternative asset space in all of the strategies and

hurdle and the catch-up, you can actually give, cosmetically,

globally as well. So once they’ve seen it, maybe in America,

something more enticing than a 15-basis-point headline

maybe in Asia, maybe in Europe, once they’ve seen it in

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lawdragon insights real estate or debt or infra, how does their thinking ever

tain parts of the world, light years ahead than other parts

go back to the vanilla, with the manager looking sensible,

of the world. In the Australian market, as a by-product

when that manager’s only oﬀering them vanilla product?

of compulsory superannuation, there’s a huge amount of

JK: I think we’ve already reached the tipping point,

money that goes into listed products.

because even the big PE managers, the ones that are

EG: Some of the technology is right for the global mar-

really well-known globally, they’ve almost all got debt

kets and some of it is wrong. So what we’re seeing is a lot

strategies now.

more in the hybrid products space, it’s not just a vanilla

EG: And those that haven’t are thinking about it.

listed product and it’s not just a closed-ended 10-year

JK: It’s not an easy thing to do, to extend your platform

PE fund; it’s in between. For managers, it’s working out

out. There are a whole list of commercial and legal issues

which of those products aligns most closely with the as-

that people have got to think through. But actually the

sets you’re buying, the investors you want to target, the

brand awareness that certain names bring is going to

succession planning the team has got, what’s their time

create consolidation in the market. Another big part of

horizon, how should they be incentivized. It’s only by

our business that we’re seeing growing is global manager

stripping it back and then rebuilding it with those features

side transactions with teams spinning out, new entrants

that managers actually see where on the spectrum they

coming in, and general consolidation. It’s clear that there

want to be. Liquidity is great, but some investors don’t

will always be successful mid-market, single-strategy

always want it; the whole point about pension funds and

managers playing in mid-market, but at the top end, if

insurance companies matching their liabilities with as-

you want to go up against the global brands, you’re go-

sets, is that they don’t really want liquidity. Liquidity is

ing to have to have a broad strategy; you’re going to have

a term imposed by regulators but it may not be a price

multiple products in the market.

worth paying in the alternatives space.

And the “next Blackstone” is a phrase that’s often used.

Conceptually, insurers are bound by regulation that they

But there are a lot of people with aspirations to have a

have to be liquid assets. But why do they need to be liquid

brand that is recognized by investors who like their brand

assets? Well, if the world goes mad and they have to pay

and then want to invest with them.

out billions, they need liquid assets. But in the absence of

LD: Obviously Blackstone is, to take them as this aspirational brand, they’re now a public company, but obviously a very uniquely structured public company. Do you think that other managers who aren’t public are going to follow that model?

the world going crazy, they want the premium associated with having the money tied up in a fund. LD: They don’t want loads of cash sloshing around? EG: The longer-term the product, the more likely it is that investors coming into that product will have diﬀer-

EG: Well, I believe it was David Bonderman who said

ent end goals. Is it right to have a single product at the

recently that he saw much of the private equity industry

time that you’re going out to market, or should you hold

becoming listed within a few years. I personally think

back and only market to half your investor base but make

that’s unlikely. But the debate’s not really solely about what

sure that they’re all happy with the length of term of the

managers become listed, it’s about the investors demand-

fund and the assets that are being bought, etc.? And then

ing increased liquidity in the alternative asset space. That

perhaps launch a separate bifurcated product for another

liquidity can range from listed securities to other forms

group of investors who have diﬀerent horizons? Diﬀerent

of redemption rights that have varying degrees of liquid-

investors are looking for diﬀerent things increasingly in

ity, so again it’s a more nuanced discussion than just will

the alternative-assets space.

managers become listed. Some will become listed and that will primarily be driven by succession planning. But oth-

JK: How does this feed into carry? EG: The historic debate was should carry be whole-

ers will not go listed, purely because their investor base is

fund versus deal-by-deal. It can’t be whole fund in the

seeking non-correlated returns. So if all PE managers are

U.S. because of the underlying tax issues that individual

listed there is no alternative space. A lot of investors are

managers would face if they went for a whole-fund model.

looking for a premium over the listed markets in return

But in Europe, the debate has been should deal-by-deal

for varying degrees of illiquidity.

disappear altogether and only have whole-fund be the

JK: This concept of liquidity or listing is really, in cer126 / lawdragon

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

now because you can opt for both. Investors can pick – go 100 percent into whole fund or you go 100 percent into

forward the menu that it’s happy with; the investors can

deal-by-deal or a mix – assets being bought from the same

select the menu that they’re happy with. Similar to eating

fund but with a diﬀerent economic model which suits dif-

in a restaurant – you don’t just say you have the house dish

ferent types of investors. So why does there always have

or nothing else, you say there’s ﬁve dishes to choose from.

to be an “either or” rather than a “both” in the alternative asset space?

PHOTO BY RON LIMA/DREAMSTIME.COM

of options so that everybody is happy. The manager puts

LD: What have been the main drivers behind this development? Is it just a natural maturing of the alternative-

LD: And how does that work practically in terms of

asset space, or do you think that there are certain things

structuring? It seems that a lot of funds have had the

that have pushed it along, like the increase in regulation,

traditional LPA and then side-letters all over the place.

meaning that managers have to think more about how

But how do you do it in a way that’s perhaps more cohe-

things have been structured. How much was it driven by

sively bifurcated?

the ﬁnancial crisis or was it coming anyway?

JK: You can bake it in on a parallel basis. Most funds

EG: There are a whole number of factors. The global

have got a whole number of parallel partnerships for tax,

ﬁnancial crisis was a signiﬁcant factor in the sense that

regulatory, commercial reasons. All you’re saying here is

prior to that event happening there was probably a 25-year

that if it’s three or four that are there because of German,

mega-asset boom. The eﬀect of that in the alternative

Dutch, U.S. tax regulation, you just say that well, that’s the

space is that everybody stopped reading documents. A

“two and twenty” whole fund and then side by side you’ve

number of investors did not do the due diligence on the

got the alternative model. So it’s just a load of parallels.

products that they were buying, and so didn’t really un-

So structurally it’s doable. Conceptually, it is about selling

derstand what they were getting into. And this applies in

it to the investors and getting the team happy that that’s

the alternative space and also in particular in the hedge

how it’s going to work. EG: There’s loads of precedents for it in the U.S., and in a sense, Europe is quite a way behind in the thinking

fund space, where large numbers of investors thought they had liquidity, which was actually notional, or even phantom liquidity when things shut down.

in many respects. The idea of a lower management fee in

Since people have started to understand far more what

return for lower carry has been around for a long time

they’re buying, they now want far more from the products

and it will become increasingly prevalent as time goes by.

that they’re buying and that they’re investing in, so that’s

Really managers can allow investors to pick from a menu

driven it. I think managers have learned many lessons

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lawdragon insights from the crisis, regulators have come in over the top, and

it’s just ensuring with the plethora of new tax and regula-

in a very unhelpful way in many respects. So they are

tory focus on this area that accidentally these funds or the

now over-regulating which means rather than, taking

investors aren’t being taxed twice, because the end users

the Alternative Investment Fund Manager’s Directive as

within all these investors are generally pension funds and

an example, a single market taking place, you’re actually

insurance policy holders. And when you strip it back, it’s

dividing the market into 27 diﬀerent markets again. Which

all of us at the end of the day that are beneﬁtting or not

is no better and probably worse than the old private place-

beneﬁtting by the eﬃciency of the structures.

ment regime in marketing. Managers have to navigate

LD: Just thinking ahead, is this going to just continue?

their way through all of these things and then on top of

Because I’m also aware that we’ve seen a couple of funds

that, the tax authorities are looking far more at how these

close recently where certainly the headlines have sug-

funds are structured and whether or not the way they’re

gested it’s almost a bit like a return to 2007 and people

structured is appropriate.

were desperate to get in, which might almost suggest it

JK: People think tax structuring is all about optimizing

could go back to just being the herd mentality of ‘Oh my

the position for managers, but the same equally applies for

God, we’ve got to get into this fund’. Then you’ve got this

investors. Because they are competitors with the managers

potential for a lot more exits coming up, some of these IPOS,

on deals, they are even getting to underwrite their own

and all these tech ones that some believe are ridiculously

deals and leading on deals. But they are still, when they

inﬂated. Could the clock ever turn back because of market

want to be, either strategically or because of new strategies

impetus? Or do you think we’ve crossed a Rubicon and

emerging, they are also LPs from time to time. So they

it’s always going to be a bifurcated picture?

are side by side. So it used to be ninety indirect and ten

EG: The clock can always turn back because it will

direct and now it’s probably switching the other way. But

always be cyclical, because people have memories that

when they put the 10 percent to play in the indirect space

eventually fade. I’m feeling old now, because as one man-

as an LP, they’re writing very big checks. They are ask-

ager said to me the other day, they’ve got people in to see

ing the kind of questions where they’ll look at a manager

them who can barely remember the global ﬁnancial crisis

and they’ll say well what is it that they are oﬀering? If it’s

because they were quite young analysts, when it hap-

deal-by-deal carry based on this kind of waterfall, what

pened, which is frightening. But you think, seven years in

does it actually mean for our return, what are we actually

ﬁnance is quite a long time. So the clock could well turn

getting? Or if we get taxed on the way through, what is the

back. However, diﬀerent people will be caught out next

manager actually giving us and what are they keeping for

time round to last time round. So those that have been

themselves, and is that fair? Their level of sophistication is

burned once, I think, are in much better positions, and

driven, some of it by conceptual understanding but some

a lot of them are holding back from investing in some of

of it just by empirical evidence. They can map the market

these funds where they may not think it’s the right one.

really as well as anyone, if not better. EG: And when you strip it all back, it actually all boils

Equally, there are oversubscribed funds out there that are oversubscribed because they have very good manage-

down on the tax side to one thing: are we avoiding double-

ment teams who historically have generated very good

tax, being taxed twice for aggregating our cash and capital

returns both pre- and post-crash and it’s absolutely right

and commitments with other investors to buy and sell as-

they should be oversubscribed. Something Jonathan and

sets? And that is, when you strip it back, that is all that is

I can’t for the life of us understand is why certain large

going on here, there’s nothing untoward or even secretive,

oversubscribed funds have actually given management-fee

“IT’S NOT AN E A S Y THING TO DO, TO E X TEND YOUR PL ATFORM OU T. THERE ARE A WHOLE LIS T OF COMMERCIAL AND LEGAL ISSUES THAT PEOPLE HAV E GOT TO THINK THROUGH. BU T AC T UALLY THE BR AND AWARENESS THAT CERTAIN NA MES BRING IS GOING TO CRE ATE CONSOLIDA TION IN THE M ARK E T.” — J O N AT H A N K A N D EL 128 / lawdragon

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PRACTICE SPOTLIGHT DEVELOPMENTS IN FUND STRUCTURING

discounts when that to us seems a very odd situation when you hear of funds being two, even three times oversubscribed, which if true, would militate against doing that. You wonder where they’ve got the idea from to do that. LD: I suppose it depends. Because I know that if managers offered fee discounts around the time of the crisis because they were so worried, then of course the investors are saying, well you did it last time… EG: I agree with that, and I think they’re in a slightly different category. That then leads you to the debate as to whether or not, when you’re looking at things from the manager’s side, whether any of these discounts should have ever been baked into the offering documents, or whether they should have been done on an investor-by-investor basis through side letters. So you can reach the same economic position between the manager and even all the investors, but you don’t necessarily have to hard bake that into your documentation, because once you do that you’re a hostage to fortune. Not all investors want economic deals with managers publicized. Both sides have interests at the larger end, for instance on the investor side, that maybe they would prefer that all investors didn’t necessarily get discounts because otherwise the discounts for the larger investors may not be so generous. It’s a mistake to, or at least an over-simplification, to think you have GPs on one side and investors on the other. You have different interest groups on both sides of the coin. JK: There are certain managers that are very successful and have basically turned themselves into merchant banks or investment banks. Unregulated investment banks. They may be able to raise money just because, and they may be over-subscribed. But I think you will always find that the alternative space will encourage the entrepreneur, and I think we will see more, and we’re seeing a lot already of people spinning out and setting up their own businesses. Those guys, that take the entrepreneurial approach will need to be a little bit more sophisticated with the offering they put to the market. PHOTO BY ISTOCK.COM/MEDIAPHOTOS

EG: The market will never remain static. But the managers, either start-ups or spin-outs, but also established managers, those that will be successful and those who have always been successful - and they are the ones that align their interests most closely with investors. Because if you do that, and your ethos is one of ensuring that your investors do well, you will always raise capital. And so long as you employ people who are always thinking about the investors, they’ll normally invest well as well. www.lawdragon.com

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PRIVATE FUNDS:

The Honorable Mentions

Insights’ research and interviews with corporate counsel at market leading funds identified several practices in the field that did not quite have the track record of the top 15 law firms but that drew significant praise for their talents in the field.

Ashurst

Ashurst has had a solid reputation in the

tions partner James Perry, whose “clear, thoughtful

UK and Europe for representing managers in these

advice” on Alternative Investment Fund Managers

jurisdictions. The ﬁrm’s strength in buyouts has

Directive (AIFMD) impresses clients. One corporate

Also highly recommended is ﬁ nancial institu-

historically provided synergy with the fund forma-

counsel described Perry as “adept at translating

tion practice.

what the regulators really mean and giving practi-

The funds team has recognized expertise in the closed end fund space as well as private equity funds, fund-of-funds, mezzanine and real estate. Notable mandates in the last few years include advising Intermediate Capital Group on its European debt fund, ICG Europe Fund V, which raised $3.4 billion in commitments, and acting for CapMan on its Nordic Real Estate Fund. Key clients include Stirling Square

cal guidance.”

Fried, Frank, Harris, Shriver & Jacobson

The ﬁrm’s powerhouse of expertise resides

ﬁrmly in the U.S., which has kept it out of the headlines of fund lawyer moves in the London market over recent years. However, sources acknowledged its “breadth and depth of expertise, particularly in

Capital Partners, Doughty Hanson and Hermes GPE.

advising fund platforms within ﬁnancial institu-

The practice is led by funds stalwart Jeremy Bell,

tions.” Another fund professional described it as a

who has a reputation in the market for “technical excellence.” Bell recently advised Rothschild Debt

“premier U.S.-based practice.” The ﬁrm’s longstanding relationship with Goldman

Fund Management on the launch of Oberon Cred-

Sachs, whom it advises on a substantial number of

it Investment Fund I, a closed end listed fund of

its funds, is well known, and the ﬁrm has advised

$280 million.

its marquee client on the ramiﬁcations of the Dodd

Working alongside Bell in London are partners

Frank legislation. Signiﬁcant mandates in the last

Piers Warburton and Nick Goddard as well as four

two years include acting for Permira on the forma-

associates. Warburton is described by corporate

tion of its latest fund targeting a reported $5.5 to $8

counsel as “someone who can drill down to the

billion; representing Fortress Investment Group in

right solution.” Recent mandates include advising

the formation of a $1.3 billion Japan-focused real

Inﬂexion Private Equity Partners on the establish-

estate fund; and acting for Vision Brazil Investments

ment of its $167 million co-investment fund, which

on its emerging markets and real estate funds. Other

was designed to invest alongside its ﬂagship buyout

key clients include Blackrock, EJF Capital, Citadel

fund into UK mid-market opportunities. The third

and Highbridge Capital Management.

London-based partner, Nick Goddard, leverages his

Lawrence Barshay heads up the Asset Management

prior expertise in corporate transactions for his focus

group. His experience covers the range of alternative

on fund work. Recent matters for him include acting

investments. Clients praise his “sharp and commer-

as part of the team that advised Dubai based Fajr

cial approach.” Another well-known personality at the

Capital on its 2012 acquisition of Dubai International

ﬁrm is Kenneth Rosh, whose practice spans private

Capital’s stake in the MENA Infrastructure Fund.

fund formation, corporate securities as well as M&A.

Jonathan Adler, David Seiden and Ian Schwartz, who

Benson “as a good, considered thinker who is able to

joined the ﬁrm in 2011 from Kirkland & Ellis, are other

bring practical problem solving skills to bear on issues

noted partners who work in the private funds space.

and problems.” Sources also complimented the way that

oodwin Procter While the ﬁrm’s fund practice is better known for

its representation of investors and mid–sized funds, as well as venture capital funds, it does have a steady roster of loyal, larger private equity funds in its portfolio of clients. These include long-term client Advent International, which Goodwin Procter assisted on the formation of the $10.8 billion Advent International GPE VII fund. Other key private equity sponsor clients include Brookfield Asset Management. The firm advised on the Brookfield Strategic Real Estate Partners fund, which closed in 2013 with approximately $4.4 billion in capital commitments.

Benson has grown in “gravitas and standing as lawyer.” Benson joins Nigel Campion Smith in London, who is recognized by the market for the length and breadth of his expertise in funds spanning both fund formation and M&A deals. Fund counsel also noted the expertise of tax partner David Raab, who was described by one in-house lawyer as “seriously good.” In the U.S, the ﬁrm’s funds practice is steered by Scott Klein and Barton Clark. Based in Washington, D.C., Clark works with a wide roster of funds including advising Denham Capital Management on Denham Commodity Partners Fund VI, which closed in 2012 with commitments of $3 billion.

community. One client enthused that this lawyer “is just

Schulte Roth & Zabel

head and shoulder above so many others.” Another fund

New York based funds powerhouse is making its presence

professional elaborated that Watson is “just a very practi-

felt in the private equity fund formation world.

David Watson heads up the ﬁrm’s funds practice and is a favorite with many in the investment management

cal person, and he is cognizant of what is really important to us as clients.”

Despite its historical sweet spot in hedge funds, this

A number of lawyers at fund managers interviewed by Insights had this ﬁrm’s name on their lips as a practice to

Other key personalities in the group’s Investment Funds

consider. This is partly a result of the ﬁrm’s immersion in

practice for private funds mandates include Jonathan

the alternative asset management space generally, which

Axelrad, whose practice spans both venture and private

grew out of its initial focus on hedge fund strategies.

equity funds. In the ﬁrm’s Hong Kong oﬃce, Brian Mc-

The practice has become adept at advising clients work-

Daniel is a key contact for work spanning both venture

ing in the distressed debt space. With the increasing

and private equity; his clients include Axiom Asia and

multi-strategy focus of many managers who were previ-

Sequoia Capital. When it comes to the next generation at Goodwin Procter, associate James Donaghue won praise from clients as “a lawyer who is very switched on to all the current issues.”

atham & Watkins The ﬁrm has historically been one of the go-to ﬁrms

ously soley buyout focused, Schulte’s expertise in hedge, credit fund and distressed asset classes is an increasingly attractive proposition. In 2012 the practice became the new base for the private equity funds practice from the defunct Dewey & LeBoeuf. The co-head of the investment management practice, Stephanie Breslow, is a dual qualiﬁed U.S.-UK

for Carlyle on buy side work. While market sources have felt

lawyer and is regarded for her work on both hedge and

that Latham has moved in and out of its commitment to a

private equity style funds. Joseph Smith represents a

funds practice over the years, recent developments suggest

range of private equity and real estate funds. His signiﬁ-

that the ﬁrm is deﬁnitely moving strongly into the game.

cant clients include REAL Infrastructure Partners and

The recent London acquisition of Nick Benson from

GE Asset Management. Recent mandates include repre-

Weil along with some additional high-proﬁ le hires on

senting Kotak Mahindra on its Indian focused private

the deal side of private equity signaled a strong intent to

equity funds.

fully compete in the global market. Benson’s impressive

In London Jim McNally spearheads much of the team’s

pedigree at Cliﬀord Chance for ten years, and then at Weil’s

private equity representations. There, notable mandates

developing London practice for three years, has given

include acting for GE Asset management on a number of

him a deﬁnite proﬁle among fund clients. They praised

its real estate focused opportunities.

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PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

[ INSIGHTS ]

PHIL BARTRAM TRAVERS SMITH (LONDON)

BY CAT RODGERS

The EU’s Alternative Investment Fund Manager’s Directive (AIFMD) has been a sea change for the funds industry. Confusion and lack of clarity over the regulations have made fund managers particularly reliant on outside counsel for regulatory advice. One of the firms at the forefront of this has been Travers Smith, whose financial services partners have often provided regulatory “gun for hire” advice to many of the leading fund managers. Here, partner Phil Bartram discusses with Insights the ins and out of the new directive and its effect on the industry. Bartram, who made partner in 2011, has made a name for himself on the AIFMD front, and advised the first and second UK private equity firms to become authorized under AIFMD. In addition, he has been heavily involved in lobbying UK and European authorities on the Directive and advising clients on its implications. JANUARY 2014 Lawdragon: In your experience advising a range of fund managers on AIFMD implementation, are there aspects that are proving most problematic with the most consistency? Phil Bartram: Periodic reporting to regulators about a fund’s activities is the topic of universal relevance which is probably least understood. This is the regulators’ attempt to capture data about what’s going on in the market, so that they can monitor systemic risks. It’s not the kind of reporting that FCA authorized firms are used to doing currently on their management firm and how that is perPHOTO BY MICHAEL WHARLEY

forming - it’s about data on the fund and the fund’s exposures. It’s very similar to the U.S. Securities and Exchange Commission’s Form PF. They’ve had it for a couple of years but it’s a similar data-collection exercise about what exposures the funds have got to particular sectors, particular markets, particular instruments and where the concentration of risk is happening.

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LD: When are the first reports due? In respect of Q1 2014, the first reports are due pretty soon. The precise point at which the reporting obligation kicks in depends on when a firm first gets its new license, or when it first markets in Europe. This reporting is challenging because the content of the forms is designed in a way that doesn’t necessarily reflect what the firms do. For example, it asks about your strategy and there’s a heading for private equity, and then there are sub-headings for different kinds of private-equity strategy – there’s venture capital, there’s development capital, but there is no sub-heading for buyout strategy, which actually accounts for the greater part of European private equity. LD: Why is that, do you think? PB: In part at least it reflects the fact that there was insufficient preparation for this legislation but also it reflects the wide variety of fund types the regulators will be getting reports about. So there’s a challenge around the content. There’s also a challenge around the method of reporting because these reports must be made in XML reporting language. Each firm will have several spreadsheets, but each firm’s spreadsheet will be subtly differently from every other. The idea behind XML is that you take one field in the spreadsheet and you put a little label on it, you give that a code, and the code is common across firms, and then you submit the data as a series of data items and they feed into the Financial Conduct Authority systems and populate their spreadsheets in a common and consistent way. XML reporting is already required by some tax authorities, so some people will be used to it. But it means that you have to interpose a service provider between the firm and the regulator to get the data across. UK asset management firms are familiar with FCAsupplied web-based reporting systems; they won’t be able to rely on that in future. So the problem is both with the substance and with the method of reporting. There are concerns that there will be some quite high initial costs associated with gearing up for this, and possibly high ongoing costs, because depending on the strategy that the fund lawdragon

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lawdragon insights employs and its size, it may have to report as frequently as quarterly. It is all quite challenging technically and people have been somewhat slow to get to it.

prescription around the marketing process. But one of the drivers for AIFMD was a concern that these institutional investors are not always as sophisticated

This is of universal relevance because the obligation to

as we all thought they were. Notably, some of the German

report applies both to EU-headquartered ﬁrms and also to

regional banks ended up indirectly in Madoﬀ. The concern

ﬁrms headquartered in the U.S. or elsewhere in the world

is that those German banks weren’t as sophisticated as

if they market interests in their funds to EU investors.

they should have been and therefore need more protection.

LD: The form itself – how close is that to the Form PF in the US?

As a result, one of the things the directive says is that when you market you must provide certain mandatory

PB: It captures a lot of the same information but there

pre-investment disclosures. And they’re all listed from

are subtle diﬀerences in the way that data items have

A to Z and must be included in your oﬀering documents.

to be measured and presented. There are some nicely

LD: Can you tell me a bit more about the nature of the

deﬁned concepts in the European rules that will not be the same in the U.S. Firms doing both kinds of reporting

disclosures? PB: Many are fairly plain vanilla: a description of the

“I HOPE THAT THE PERIODIC REPORTING TO REGUL ATORS, THOUGH BURDENSOME, WILL GENER ATE DATA ON A M ACRO LE V EL THAT GOV ERNMENTS AND FINANCIAL S TABILIT Y REGUL ATORS WILL BE ABLE TO USE. THAT M AY AV ERT A FUT URE CRISIS.” — PH I L BA R T R A M will probably be able to recut and manipulate data that

investment strategy of the fund for example: something

they are already collating but it isn’t straight duplication.

you would expect to be in any oﬀering document. Some are

I suspect that, in practice, most ﬁrms will use outsourced

fairly boring and lawyerly – just instruct your lawyers and

service providers to help them to report. Some very large

they’ll write it for you. For example, you have to describe

multi-strategy clients are building their own reporting

the procedure for the issue of units in the fund and how

tools with our help but that’s quite a big exercise.

it is that legally the investor becomes bound to the fund.

LD: What are some of the other areas most impacted by AIFMD?

But the one thing that I think is potentially challenging is a requirement to describe how the manager ensures the

PB: Marketing – the process of raising a fund – is going

fair treatment of investors (as between the investors). If

to change. Again, this is relevant both to EU-headquartered

any investor gets preferential treatment, there has to be

ﬁrms and their U.S. peers marketing to EU investors. To

an up-front description of what that preferential treatment

date, there has been a patchwork quilt of private-placement

is, and the kind of investors who become entitled to it.

regimes across the EU. Whilst some regimes have been

What this drives at is the practice of using side-letters.

restrictive, the underlying assumption is that alternative

Generally speaking, a fund has a set of terms that might

funds are marketed only to sophisticated institutional

be in the limited partnership agreement and the oﬀer-

investors, often assisted by gatekeepers such as invest-

ing document for the fund. But the manager reserves

ment consultants. So even if the investor is not himself

the right to agree on separate, different terms with

very sophisticated, he can hire somebody who is to help

particular investors.

him. Indeed, investors often have the whip hand – they

Some of those things will be relatively transparent to

have substantial buying power and are able to inﬂuence

all investors – such as early-bird discounts. That would be

the outcome. For all those reasons, there hasn’t been much

an example of something that’s quite transparent because

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PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

you say to everybody upfront, “If you come in by this date,

for a license as an authorized AIFM, and for those above

then the management fee will be reduced by so many basis

the de minimis threshold set out in the legislation - which

points.” But you might in some circumstances agree to a

in round ﬁgures equates to either $140 million if you’re

better management fee deal with somebody who comes in

a hedge fund, or $700 million if you are a private equity

later just because they’re prepared to write a big cheque

or real estate fund - there’s a rule that says you must

or because they’re an impressive name to have on your

have a fully functionally and hierarchically separate risk-

investor list.

management function.

This legislation contemplates that you have a duty, a

The paradigm that the legislation has in mind is a hedge-

regulatory duty, to treat the investors fairly. Before we’d

fund model, where you have a team of very well-paid port-

have said, “As long as you do whatever the fund documents

folio managers, whose job it is to go and bet on a particular

say about cutting special deals, then inherently you’ve

stock or bond or derivative. They’re focussed on upside,

done what you have to do; you don’t have any particular

so they might take more risks than have been agreed with

duty to one investor to give them the same deal that you

investors. In a back room there is somebody whose job is

give to another one.”

to hold the portfolio manager to account and apply risk

This legislation creates some challenges about the use

limits. They intervene before the portfolio manager can put

of side-letters. Where funds use something called a most-

on the trade. So an equity long-short hedge fund manage-

favored nation provision - which says if one investor con-

ment ﬁrm may already have a dedicated risk-management

tributing $50 million, let’s say, has cut a special deal, then

function separate from the portfolio-management function

every other investor contributing $50 million gets all the

and these people might be incentivised for doing their job

same terms - then you may not necessarily comply with

properly and not be led into a conﬂict of interest. It’s very

the letter of the obligation to give transparency about the

similar on the investment bank trading desks.

side-letter terms. But it doesn’t really matter because it

But the paradigm doesn’t work very well for other models.

comes out in the wash at the end – the policy behind the

Lots of private equity, real estate and infrastructure funds

law is satisﬁed. But not every fund has an MFN.

and some credit funds work diﬀerently; what they have

How you comply with this obligation to ensure fair

is decision making by investment committee or credit

treatment is tricky. There’s no real guidance yet from any

committee composed of senior people who are not only

of the regulatory authorities on how to comply with the

thinking about the upside, they’re also thinking about the

particular requirements. Some regulators have publicly

downside. Their investment paper is very likely explicitly

acknowledged that there is a learning process for everyone

to address the base case, the upside case and the downside

involved – supervisory expectations and industry standard

case subject to various stress tests, for example, “What if

approaches will develop over time. A related point is that if you are an EU-headquartered manager with one of the new licenses, when you market you have to provide your marketing documents to your

interest rates move against us?” In this model, portfolio management and risk management are ﬂip-sides of the same coin. Now, whilst the legislation contemplates that you will

local regulator 20 business days in advance. And if you

separate these functions, it is acknowledged that in some

propose to make a material change to the terms that you’ve

cases it may be disproportionate to go quite to that extreme.

shown to the regulator, you have to give them a month’s

Where it is disproportionate, the ﬁrm nevertheless must

notice before eﬀecting the change. That might mean in

meet certain minimum conditions. The trouble is that the

a closed-ended private-fund context, one month before

minimum conditions are themselves quite challenging.

each closing you have to tell them about the changes to the fund docs. That will mean some subtle changes in the practical approach to fund closings because whereas

LD: And isn’t there now a requirement that compensation schemes incentivize risk management? PB: Yes. Among the minimum conditions is that the

before it was just a private thing between the investors

pay of staﬀ in the risk function reﬂects the achievement

and the manager, you’ve now got to build in an interaction

of their objectives independently of the business areas

with the regulator.

in which they are engaged. It’s helpful in that it acknowl-

LD: And what about risk management?

edges that these people can also be engaged in another

PB: For EU-headquartered houses that are applying

part of the business, but you’re supposed to pay them, at

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lawdragon insights least in part, in a way that reﬂects the performance of

because of the asset-veriﬁcation requirement. Have any

their risk-management objectives. It also says that the

people come to you because of such problems?

risk-management function must be represented on the

PB: In my personal experience, those have been theo-

board with at least the same authority as the portfolio-

retical risks rather than real ones. But I don’t discount

management function. So we’re not talking about hiring

that may happen - that the fund wants to invest in some

one or two junior people to ﬁll a gap here, we’re talking

far-ﬂung South American jurisdiction and the depositary

about grey hairs and senior people.

just says no because we’re not conﬁdent we can manage

Clearly, some private equity ﬁrms have already been

the risks there. Certainly the depositary has to undertake

licensed. So it can be done, but it is a challenge to work

substantial DD on the manager’s investment processes to

it through.

get comfortable with the particular risks.

LD: Are there additional parts of the regulatory framework? PB: Another new feature is the depositary. The require-

The outcome will be inﬂuenced by where supervisory expectations and market-standards for the depositary land. If regulators start to impose very strict conditions

ment for a depositary is also in part about Madoﬀ. The

on the way the depositaries conduct their business, some

lawmakers say that even though the investment manager

of these things could become more challenging.

is now regulated, and we’ve checked out the people who

LD: You mention that this could be challenging for

run it, we still don’t trust those people not to run oﬀ with

some hedge-fund strategies. Can you elaborate on that?

the assets of the fund. So we’re going to introduce a quasi-

PB: Hedge funds tend to have prime brokers and after

regulator close to the fund. Alternative funds don’t have depositaries at the moment (although some of the depositary’s functions are

Lehman collapsed they realized that it probably wasn’t very sensible to have one prime broker. You probably wanted more than one in order to hedge your risks.

performed by third party administrators if they’re used).

However, the legislation contemplates (at least for

The roles of the depositary include holding certain assets

European-headquartered managers of European funds)

in their custody – shares in Vodafone, for example, traded

that there can only be one depositary. If you did only have

on a market. In relation to other assets – an interest in a

one depositary, in theory you could choose to appoint a

commercial real estate development, for example - they

prime broker to that role, but they’d have to maintain

have to oversee title: check that the fund has obtained

Chinese walls between diﬀerent parts of their business.

good title to the asset and keep an eye on the manager so

Whoever you appoint, you’ve got to manage the interac-

that it doesn’t steal the fund’s asset.

tion between the depositary and prime brokers A, B and

This is a model that already exists in the UCITS world

C, who may have taken security over certain of the fund’s

(EU mutual funds). When imposed on alternative funds,

assets. The ideal framework for these sorts of interaction

frankly it doesn’t add much. First of all it’s very diﬃcult

is still being developed. The legislation came into force

for a private equity or real estate fund manager to run oﬀ

July 22, 2013, but because everybody took advantage of

with a portfolio company or shopping centre. All one has

transitional relief, a lot of people took their foot oﬀ the

to do is ask the management of Pret a Manger who owns

gas. Hedge fund managers in particular had a number of

it, and they’ll say, “Well Bridgepoint own us.” So it’s quite

issues to grapple with, among them “Who is our AIFM?”

diﬃcult to steal a company. There are no examples of which

and therefore took a little bit of time to work out quite

I’m aware of that sort of thing going wrong. Also, the de-

what approach they were going to take to the directive. So

positary duplicates the role that an external auditor plays.

issues like that depositary question have not been fully

Of course, the depositary demands a fee. The fees aren’t

resolved because not enough other pieces of the jigsaw

as high as the industry once feared they might be (on the whole, the providers of depositary services have been quite pragmatic and there is competition between them) but they still add to the total expense ratio. And in the end, it’s the investors who bear the cost.

have been in place to do that. LD: And now the time is ticking for the transition to expire. Would you walk me through these timelines? PB: The transitional relief expires July 2014. Currently the UK says you must have obtained your license

LD: Some worry that the depositary function will be

by July 22, 2014. Latterly, HM Treasury has conceded

a deterrent to things like investing in emerging markets

that that is too strict and they’re going to change the UK

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PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

MORE ABOUT TRAVERS SMITH The London-based specialists in European regulation The global financial crisis brought the funds industr y under the gaze of the regulators, who responded with a raft of regulatory reforms, many impacting on private funds managers. And the trend looks set to continue, with new regulations advancing all the time, both in the U.S. and Europe. One GC put it like this: “I see it never stopping. Straight af ter this directive, there’ll be another one, and another one and another one,” meaning that “all of us need to become regulator y lawyers as well as whatever we do in our day job.” Insights heard how “UK and European regulation is a big weakness for many law firms.” One exception that has cleverly exploited the increasing European regulatory burden on funds, and guided them through the maze of the EU’s Alternative Investment Fund Managers Direc tive (AIFMD) and other reforms is London-based Travers Smith. And “Boy, these guys are all over this thing” one in-house lawyer told us. The Travers team has been able to create a niche that has brought several of the top sponsors to their door, not least for their connections with the regulators. “It was clear from the word go that the people that would be advising us had been working in the industr y for a ver y long time, knew ever ything there was to know and were involved in the policy-making processes.” The team’s credentials speak for themselves. Margaret Chamberlain is a member of the British Private Equity and Venture Capital Association (BVCA) Council, and has chaired the BVCA Regulator y Committee for more than a decade. Margaret, Tim Lewis and Phil Bar tram are members of the European Private Equity and Venture Capital Association (EVCA) AIFMD core technical working group plus Bar tram is also a member of the EVCA Tax, Legal and Regulator y Committee and the British Proper ty Federation’s Finance Committee. Jane Tuckley is a member of Alternative Investment Management Association’s regulator y committee. Such a collection of memberships places the group in a unique position for lobbying on behalf of the industr y. Of course, an incisive understanding of policy is of limited value to client s without an accompanying commercial approach, but this too is something that the group is said to possess in spades: “They were good communicators and the advice they gave us – we never felt, ‘Oh I wonder what they really meant’ or ‘how do we turn that advice into action?’ Ever ything was delivered how we wanted it.” Many in-house counsel agree that adroitness in a grow th area such as this is a smar t way to develop your fund formation profile too, “because people know that they know what they’re talking about, because they’ve been working on the big funds - there is a self-perpetuating momentum.” In addition to Phil Bar tram, notable team members include:

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MARGARET CHAMBERLAIN Partner – London Margaret Chamberlain is an influential member of the funds community, and a thought leader in the evolution of AIFMD. An inductee to the BVCA Hall of Fame, her panel and committee memberships are manifold: She is a member of the Council of the BVCA, Chairman of the BVCA regulator y Commit tee and Chairman of the City of London Law Society Regulator y Committee. Put simply, she is a pivotal figure in representing the private equity and venture capital sectors to government and regulators. Day to day she is a well-known speaker on the conference circuit, and is highly regarded for her skill in answering technical regulator y questions. Her practice includes advising on the application of regulator y requirements to fund formation, management and marketing for private equity and venture capital firms, as par t of a broader financial ser vices practice. She also heads the firm’s financial ser vices team. JANE TUCKLEY Partner – London Jane Tuckley is another par tner with an ample reputation in the regulator y sphere, able to balance an assiduous obser vation of regulations with a commerciality that is appreciated by clients. In addition to her membership in AIMA’s Regulator y Committee, she is a member of its AIFMD working group. She has advised financial ser vices firms on the impact of AIFMD and other new EU directives, and has acted, as well, for fund managers, investment managers, brokers and corporate finance firms on regulator y issues. She has a wider financial ser vices practice for a client base of private equity, hedge and other fund managers, as well as por tfolio managers, investment banks, brokers, corporate finance firms and market infrastructure providers. TIM LEWIS Partner – London Clients approve of the qualit y of financial ser vices par tner Tim Lewis’ advice because “he’s aware of the sector, and can therefore contextualize what the rules, the legislation and the directives say in the context of your business – and that’s what clients want.” He has advised private equity firms, debt fund managers and brokers on regulator y changes, and has also assisted investment managers, banks and brokers on new regulator y requirements and changes to the EU regulator y capital regime. Hedge funds, pension fund trustees and electronic communications networks also comprise his client base.

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lawdragon insights implementing regulations so that you need only submit

It can take the FCA several months to determine the

your application by that date. However, whether licensed

application. Managers are waiting several weeks even to

or not, an EU-headquartered ďŹ rm must fully comply by

be allocated a case oďŹ&#x192;cer.

July 22, 2014: depositary appointed, risk management

riod of exemption until your license comes into play. So

PHOTO BY SYLVAINDEUTSCH/DREAMSTIME.COM

functioning etc. etc.

LD: So theoretically after that date there will be a pe-

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PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

it could be 3 months…. PB: It could be. But then you’ve got to be complying, and that raises some diﬃcult questions. How do you report to

people shouldn’t be delaying. The FCA is now encouraging applications by April 22, 2014 latest: the better advice is to crack on with it.

the regulator when you’re not on the regulator’s computer

For U.S. headquartered ﬁrms, and others outside the

systems, for example? It’s far from a perfect solution and

EU, marketing into the EU, transitional provisions varied from jurisdiction to jurisdiction. The broad effect in the UK was that if you were actively marketing a particular fund before July 22, 2013, you could continue to market that fund for up to another year without concerning yourself with the directive. LD: Do you think there might be a sort of bottleneck problem at the FCA itself as everybody floods to comply? PB: It is a challenge for the FCA – there are vastly bigger numbers of alternative asset managers in the UK than in other EEA jurisdictions. We’ve got to give credit where its due: Around this time last year we were saying to the FCA, “Look, there are some managers who desperately need their license from July 22, 2013, because they need to go out and market new funds and they need a passport to be able to do it.” Credit to the UK authorities, they responded to those concerns and allowed people to submit “earlydoors” applications some months before the legislation came into force: they recruited temporary staff in order to be able to do it. Some firms took that opportunity and hence people like Doughty Hanson got their licenses on July 22, 2013, the first date they could possibly have got them. However, the industry didn’t take up that option in large numbers. If firms are hitting a bottleneck now, they can’t complain too much. LD: And what about remuneration? PB: The legislation says that an EU-headquartered firm must have some policies about how it pays people, to make sure that their incentive is aligned with the interests of the funds and the investors. But the most difficult rules require that a subset of your staff (the senior managers and the people on the investment committee) must have about 60% of their variable pay deferred over at least three years. The legislation also says that you need to pay 50% of the variable pay in units in the fund, as opposed to cash. You have to apply that 50% both to the deferred and nondeferred element. The effect is that the take-home pay in cash in year 1 is a fraction of what it was. A few years down the line, some of those deferred awards are vesting. So, ultimately, what execs take home in cash is back to what it once was, but it’s all now subject to risk adjustment: if something goes wrong, the awards either won’t vest, or they can be clawed back.

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lawdragon insights This is all based on rules currently applicable to EU

basic audited P&L, balance sheet, cash-ﬂow. However,

bankers. It hasn’t yet really aﬀected many EU asset man-

you must also include in the annual report the aggregate

agers for two reasons. First, the FCA has made clear that

pay of the staﬀ of the non-EU manager. Not “Joe Bloggs

they will apply these rules to the ﬁrst full performance

earns a particular dollar amount,” but in aggregate what

period after the ﬁrm obtains its authorization: most likely

the pay of the staﬀ of the manager is. It’s necessary to

January 1, 2015.

break down that aggregate in certain ways, as between

Second, they published some guidance on circumstances

ﬁ xed and variable, as between senior managers and risk

in which it would be disproportionate to apply the rules

takers. Some ﬁrms are quite relaxed about this but for

in full. If you are small, there’s the presumption that you

others it could in practice lead to disclosures with which

don’t need to do defer or pay in fund interests. If you’re

they are uncomfortable from a conﬁdentiality or personal

big, there’s a presumption that you should, subject to some

data protection perspective.

other tests, such as how risky your investment strategies

The ﬁnal harmonised requirement is that, if you’re a

are, how well risk-managed you are, and how your current

PE fund, there are rules on transparency to the portfolio

incentive arrangements work.

company that you’re investing in and certain restrictions

LD: What do you think is in store for non-EU managers? Do you think there are any particular challenges coming up for them? PB: The application of the directive to non-EU manag-

on distributions and deemed distributions, so called “asset stripping.” Between the pay disclosure rules, the periodic reporting rules, the pre-investment transparency rules and those

ers was very contentious, so some diﬃcult questions were

rules on asset-stripping, there’s a number of reasons why

deferred and are subject to further cost-beneﬁt analysis

a non-EU manager might think: “This is all too diﬃcult.”

and future legislation. Broadly, the current rules – the

And this is before they have to contend with the patchwork

patchwork quilt of national private placement regimes

quilt of private placement regimes in each of the 28 EU

– are to apply up to probably 2015/ 2016. After that, non-

Member States, which diﬀer from each other. Some, such

EU managers may be able to opt-in to a greater burden

as Germany, have set quite intimidating requirements.

in return for a “passport” to market their funds around

The crunch point comes July 22, 2014, when transitional

Europe. The idea is that by around 2019, this may become

relief is a thing of the past. People will be thinking very

mandatory, in which case the private placement rules

carefully before they let themselves in for all this cost and

will fall away.

eﬀort, which they wouldn’t have to worry about if they

Under the current regime, the directive doesn’t apply at all to a non-EU manager of a non-EU fund. It only has any relevance if that manager wants to market its fund in the EU. Subject to the transitional relief I mentioned earlier,

went to raise money instead in Asia, or the U.S. LD: Are you seeing these rules as a disincentive to invest in Europe or to market to European investors? PB: For some people, it’s deﬁnitely a disincentive to

there are several conditions that must be met. First, the

market to European investors. If European investors are

manager and the fund must be in a money-laundering

of marginal interest to a fund – maybe they only would

whitelist country – that’s fairly easy. Second, there must be

ever have gone to Allianz in Germany and the Wellcome

supervisory cooperation agreements between the regulators

Trust in the UK, then maybe they think, well, we’re just

in the jurisdiction of the fund and the manager and each

not going to bother.

EU jurisdiction into which you propose to market. There

If, though, Europe is an important investor base – and

was a big panic about those agreements but pretty much all

for many houses it is still – they would have to be quite

the ones we really need are now in place. Then, these ﬁrms

brave to say we’re going to carve oﬀ a big chunk of the

have to comply with the pre-investment transparency rules.

developed world as a marketing jurisdiction right from

LD: Oh yes, marketing.

the get-go. I think it will be a mixed picture.

PB: As we’ve said, some of those disclosures are chal-

To avoid falling into these rules, apart from relying on

lenging. They also have to make the periodic reports to

transitional relief, what some managers are doing is rely-

regulators that we discussed ﬁrst. And they have to pre-

ing on an argument that investors are approaching them

pare an annual report conforming to directive content

on their own initiative – so called “reverse solicitation.”

requirements. On the whole it’s quite straightforward:

That means they are not marketing, and therefore none

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PRACTICE SPOTLIGHT THE REGULATORY LANDSCAPE

of these rules apply. As you can imagine, the boundary

2008. In about 2009, the Commission acceded to the

between what constitutes reverse solicitation and what

demands of the European Parliament that there should

constitutes marketing is blurred and the interpretation

be legislation and put forward draft legislation which

of what reverse solicitation means diﬀers between EU

was fundamentally ﬂawed. As with lots of EU legislation,

jurisdictions. Certainly it’s no basis for an organised mar-

this topic required delegated legislation, implementing

keting campaign.

measures, guidance, and that all dribbles out over many

LD: So obviously that uncertainty is why people are sitting on the fence at this point. Waiting to see.

years. At some points it seemed totally black for the industry, but lobbying did improve things in signiﬁcant ways.

PB: Between relying on transitional relief where it is

For that reason, I’m quite sympathetic to asset managers

available - and reverse solicitation - many ﬁrms haven’t

who concluded that there was no point in investing time

had to cross the Rubicon yet. LD: What do you see as the key practical implications for managers with signiﬁcant European investors?

following all the twists and turns, and who have come to it relatively late, when things are a little more settled. Within ﬁrms which have in-house lawyers (and not all

PB: If the ﬁrm is headquartered outside the EU, for

do), the lawyers probably started to understand this stuﬀ

now (pending changes from 2015/16 and again from 2019)

ﬁrst, and pushed it up the agenda. But there has been

you’ve got to navigate the national private placement

great buy-in from across the diﬀerent teams. Now there

regimes, and some of those are quite tricky. For example,

are several ﬁnance directors in the City and Mayfair and

Denmark says you can only market there if there are

the U.S. who are all over this, but it diﬀers by organization.

reciprocal marketing arrangements in your home state.

LD: How much do you think the structural changes

That means if you’re a U.S. manager with a U.S. fund,

involved for AIFMs will be a positive force in the market?

you can only market in Europe if the U.S. SEC says Dan-

PB: We’ve got to look for some positives here.

ish funds can be marketed in the U.S. on an equal basis.

I hope that the periodic reporting to regulators, though

Seems unlikely to happen and we hear that the Danes

burdensome, will generate data on a macro level that

may revisit their rules. Germany insists that non-EU

governments and ﬁnancial stability regulators will be able

managers have a depositary, even though the directive

to use. That may avert a future crisis. That’s important,

itself doesn’t call for a non-EU manager of a non-EU fund

because there is a trend for activity to move away from the

to appoint one. And you’ve got to be prepared for the

banks - because of things like [the] Volcker in the U.S. and

reporting, pre-investment transparency and anti-asset

Liikanen [reports] in the EU, and Vickers in the UK - to

stripping rules. So some diﬃcult points to discuss with

the asset management industry - to non-bank institutions.

business development and IR teams.

So capturing the data is valuable.

If a ﬁrm is headquartered in the EU – and over the

Apart from that, one of the inspirations for this legisla-

de minimis thresholds – then you’ve got to get a license.

tion was the idea that some institutional investors weren’t

We started describing this many years ago as “fun-

as sophisticated as we thought they were. I have a little

damental change for the fund industry.” The regulatory

sympathy with that because a few investors rely too much

burden is fundamentally diﬀerent from what went before.

on their gatekeepers. So maybe there is marginal beneﬁt

LD: How well are legal teams situated to deal with it?

to some of the transparency requirements for some of the

PB: The key point is that lawyers on their own can’t do

least sophisticated institutional investors. It would have

the job. You need senior management to buy in and allo-

been better to protect them in a diﬀerent way, though. If the

cate a budget, and you need your investment teams, your

problem was German Landesbanken ending up in Madoﬀ

front oﬃce teams, your ﬁnance teams, your ops teams to

then maybe the rules applicable to German Landesbanken

get together to implement this stuﬀ. That’s particularly

should be tightened up – and we are beginning to see new

true for EU-headquartered houses compared to non-EU

legislation along those lines.

headquartered houses. LD: What’s buy-in been like from those various parts of the fund managers from your experience? PB: The legislative process in relation to AIFMD has been really drawn out. We started working on it in 2007www.lawdragon.com

On the whole, though, as we wrote in June 2011, much of this law is “unjustiﬁed,” “wholly unsatisfactory,” “unclear” and “deeply politicised.” It lacks proper cost-beneﬁt analysis and isn’t underpinned by a thorough understanding of the sector being regulated. lawdragon

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W W W. L AW D R A G O N . C O M

[ CLIENT AND REGULATORY BODY INDEX ] This index contains the names of fund managers and other related financial institutions, including managers that have merged or been spun off in recent years, as well as individuals mentioned by name in the guide. It does not contain references to strategic targets or to fund managers that have not been operating for a number of years. This index also references financial institutions and financial authorities/regulatory bodies that are mentioned. 17Capital ...........................................................61, 62 8 Miles...............................................................119

A A&M Capital Partners .....................................97 Abraaj Group ...................................................47, 119 ABS Capital ......................................................83 Actera Partners ................................................58 Actis...................................................................7, 9, 10, 67, ............................................................................95, 99, 107 Adams Street Partners ....................................56, 81 Adelis Equity Partners.....................................65, 66 Advent Capital .................................................113 Advent International .......................................131 Advisory Committee of the Securities and Future Commission .................................17 AEA Investors...................................................96 African Venture Capital Association’s Legal and Regulatory Committee.................66 Alcentra Ltd ......................................................60 Alchemy Partners ............................................62 Aleph Partners .................................................119 Alinda Capital Partners ...................................31, 33 AllianceBernstein.............................................96 Allianz SE ..........................................................140 Alpha Real Capital ...........................................61 AlpInvest ...........................................................62, 105 Alternative Investment Management Association (AIMA) .................46, 113 American Council of Life Insurers..................32 American Industrial Partners..........................98 American Securities ........................................119 Amherst Holdings...........................................111, 112 AMP Capital Investors ....................................17 Angelo Gordon................................................14 Apax ..................................................................17, 45, 60, ............................................................................95, 99, 100, ............................................................................107, 122 Apollo Global Management ..........................73, 74, 103 Apollo Investment Corporation ....................111 Aquiline Capital Partners................................96, 101 Ardian................................................................111 Ares Management...........................................81, 82, 83, ............................................................................84, 87 Arle Capital Partners .......................................100, 107 Arlon..................................................................97 Arsenal Capital Partners .................................56 Asia Research Capital Management.............17 Atlas Holdings ..................................................82, 84, 87 Atomico Investment Holdings .......................83 Aureos Capital .................................................47 Avenue Capital ................................................19, 65 Axiom Asia .......................................................131 Axion .................................................................67

B Bain Capital ......................................................91, 92, 94 Banco Itau.........................................................113 Bank of America ..............................................55 Banyan Capital.................................................94 Barclays Infrastructure Funds Management........................................107 Barclays Private Equity....................................16 Baring Private Equity Partners .......................34 Baring Vostok Capital Partners......................34 Bass/Oak Hill Capital ......................................73, 74 BC Partners ......................................................15, 18, 95, ............................................................................107, 108, ............................................................................121, 122 Beijing Association of Private Equity ............17 Berkshire Partners ...........................................119, 121 BGI.....................................................................39 BlackRock .........................................................15, 75, 93, ............................................................................94, 111, 112, ............................................................................113, 130 Blackrock Private Equity Partners AG...........16, 17 Blackstone Alternative Asset Management .........................................13, 14, 74, ............................................................................95, 96, 97, ............................................................................101, 103, ............................................................................104, 105, ............................................................................126

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Blackstone/GSO Capital ................................73, 74, 75, ............................................................................97, 105 Blue Bay Asset Management ........................55, 57 Blue Water Energy .........................................57 Blue Wolf Capital Partners .............................83, 84 BNP Paribas......................................................45 BNP Paribas/Glenmont Partners...................119 Bonderman David (TPG) ................................126 Boston Ventures ..............................................91 Bouwfonds .......................................................18 Bowmark Capital .............................................48 Bridgepoint ......................................................18, 95, 107 Bridgewater .....................................................20 British Private Equity and Venture Capital Association (BVCA) .............46, 48, 137 British Private Equity and Venture Capital Association (BVCA) Regulatory Committee .....................137 British Property Federation Finance Committee ........................................137 Brookﬁeld Asset Management .....................35, 119, 120, ............................................................................131 Brown University..............................................91 BTG Pactual......................................................95, 97

C CALPERs (the California Public Employees’ Retirement System)....................103, 105 Capital Dynamics ............................................45 Capital International .......................................19, 32 CapMan ............................................................130 Carlyle ...............................................................7,8, 10, 29, ............................................................................30, 33, 35, ............................................................................95, 96, 97, ............................................................................101, 103, ............................................................................104, 105 CCMP Capital Advisors ..................................119, 120 CDH Investments ............................................34 Centerbridge ...................................................95 CenturyLink Investment Management ........66 China Association of Private Equity ..............17 China Investment Corporation ......................58, 60, 105, ............................................................................122 China Tax Forum..............................................66 Chinese Securities Regulatory Commission (CSRC) ........................................70 CIFC ..................................................................97 Cinven ...............................................................59 , 60, 109 Citadel ..............................................................130 Citi Capital Advisors .......................................111, 112 CITIC Private Equity Funds Management....67 Citigroup Alternative Investments ................97 City of London Law Society Regulatory Committee ...................................137 CIVC Partners...................................................56 Claren Road Asset Management ..................105 Clarium Capital ................................................111 Clayton Dublier & Rice ...................................29, 32, 39, ............................................................................43 Clearlake...........................................................73 Clearlake Capital Group.................................74 CM Equity Capital Management ..................66 Coller Capital ...................................................47, 48, 65, ............................................................................66, 67 Colony Capital .................................................65 Commonwealth Development Corporation CDC ............................................10, 65, 66 Comvest Partners ............................................56 Core Capital .....................................................48 Corsair Capital .................................................97 Credit Suisse ....................................................14, 19, 20, ............................................................................119 Credit Suisse AG .............................................16 Crestview Partners ..........................................19, 20 Crow Holdings Capital Partners....................119, 120, 121 Cushman Wakeﬁeld ........................................60 CVC Capital Partners ......................................18, 95, 96, ............................................................................99, 100, 107 Czech Asset Management .............................81, 83, 87

D Danske Private Equity ....................................57 DE Shaw............................................................31 Denham Capital Management......................131

Department of Trade & Industry ..................46 Deutsche Bank.................................................14, 112 Deutsche Bank Asset & Wealth Management ............................................................................15, 19, 111, ............................................................................112 Development Partners International ............65 Diversiﬁed Global Asset Mangement (DGAM) .....................................105 DLJ Merchant Banking ...................................19, 20 Doughty Hanson & Co ...................................99, 130, 139 DRC Investment Capital .................................16, 17 Dubai International Capital............................119, 130 Duke Street Capital .........................................99 Dunedin ............................................................61

E ECM Equity Capital Management GmbH ...66 Egeria ................................................................66 EIG Global Energy Partners ...........................29, 31 EJF Capital .......................................................130 Emerging Markets Private Equity Association (EMPEA )Legal & Regulatory Council ...........34 Emerging Markets Private Equity Association (EMPEA) ............................................................34 Emerging Sovereign Group (ESG) ................105 Endless..............................................................45 Enterprise Investors ........................................82, 83 EQT ...................................................................30, 33, 34, ............................................................................95, 99, 107, ............................................................................108 Equistone .........................................................15, 16 European Investment Fund (EIF ) ..................62 European Private Equity and Venture Capital Association (EVCA)...........................46, 48, 122, ............................................................................137 European Private Equity and Venture Capital Association Tax & Regulatory Committee ..137

F Fajr Capital .......................................................130 Falcon Investment Advisors ...........................82 Ferrer Freeman & Company ..........................56 Fidelity ..............................................................103 Financial Conduct Authority (FCA) ...............133, 138, ............................................................................139, 140 Financial Services Authority (FSA).................46, 63 Financial Services Roundtable.......................32 First Reserve.....................................................95 Fortress Investment Group ...........................75, 111, 130 FountainVest ....................................................91, 94 FSN Capital ......................................................107

G Gávea Investimentos ......................................18, 31 GE Asset Management ..................................39, 131 Gemdale Corporation ....................................60 General Atlantic...............................................73, 75 General Catalyst Partners ..............................83 Generation Investment Management ..........16 GIC Private Limited .........................................65 Global Infrastructure Partners ......................29, 32, 33, ............................................................................34, 35 Goldbridge Capital Partners .........................59 Golden Gate Opportunity Fund ...................55 Goldman Sachs Asset Management (GSAM) ............................................................................91, 119, 130 Gores Group (The) ..........................................119 Government of Singapore Investment Corporation .................................66 GP Investments................................................19 Gramercy..........................................................18 Graphite Capital Management .....................119, 121, 122 Graycliff Partners .............................................111, 113 Greenhill & Co. ................................................19, 20 Greensphere Capital ......................................66 Grey Mountain Partners .................................81, 82, 84

H HarbourVest .....................................................29, 32 Harvard University...........................................91 Harvest Partners ..............................................74, 75 Hastings Fund Management .........................119

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lawdragon insights Haymarket Financial........................................61, 62, 63 Hellman & Friedman .......................................95, 98 Hermes GPE.....................................................130 Hg Capital ........................................................81, 84, 85 Highbridge Capital Management.................130 Hillhouse ...........................................................14 HM Capital Partners........................................121 HM Treasury .....................................................136 Hong Kong Government’s Financial Services Development Council .....................17 Hony Capital ....................................................34 Hopu Investment Management ....................15, 17, 18 Hosen Capital ..................................................17, 18 HSBC .................................................................17 HSH Nordbank ...............................................47

I iCON Infrastructure ........................................57 IDFC Ltd...........................................................119 IDFC Alternatives Ltd......................................119 IFM Investors....................................................65 IK Investment Partners....................................61, 62 Indaba Capital .................................................98 Inﬂexion Private Equity Partners ...................130 Infracapital........................................................15 Infrared .............................................................18, 59 Inland Revenue ................................................46 Institutional Limited Partnership Association (ILPA) ............................................69 Intermediate Capital Group ..........................130 International Finance Corporation (IFC).......15 Investindustrial.................................................45, 47 Invision Private Equity AG ..............................45 Iron Point Partners...........................................74, 75, 76

J J.W. Childs ........................................................81, 87 JC Flowers ........................................................95, 101 JP Morgan ........................................................13 14, 19, 73, ............................................................................81, 82

K Kainos Capital ..................................................121 Kandeo .............................................................18 Kelso & Company............................................32 Kohlberg & Co .................................................93 Kohlberg, Kravis, Roberts (KKR) ....................13, 14, 29, 30, ............................................................................32, 39, 73, 74, ............................................................................95, 97, 103 Kotak Mahindra ...............................................131 KPS Capital.......................................................73 , 74 KSL Capital .......................................................99 KV Asia..............................................................67

L L Capital Asia (LVMH)......................................57, 58 Landmark Capital ............................................91 LaSalle Capital Group.....................................56 LaSalle Investment Management..................45 Legal & General Investment Management 61, 63 Lehman Brothers ............................................7, 8, 41, 49, ............................................................................52, 75, 107 Lennox Investment Management ................62 Lexington Partners ..........................................81, 82, 87, 95 Lindsay Goldberg............................................119, 120 Lloyds Banking Group ....................................47, 48, 65 LNK Partners ....................................................74 LNK Partners ....................................................76 Lyceum Capital ................................................61, 62

M Macquarie .......................................................55, 95, 96, ............................................................................101 Madison Dearborn Partners ..........................56 Madoff ..............................................................134, 141 Makena Capital................................................91, 92, 93 Man Group .......................................................17 Man Investments .............................................17 Marlin Equity ....................................................55 MBK Partners ...................................................13, 14 Metalmark Capital...........................................19, 20 MGPA................................................................113

Mithril ................................................................111 Montagu Private Equity .................................61 Metric Capital ..................................................61 Montana Capital Partners ..............................45 Montauk Triguard ............................................87 Morgan Stanley ...............................................19, 29, 32, 95, ............................................................................97, 101 Morgan Stanley Alternative Investment Partners ........................................56

N New Enterprise Associates ............................81, 84 New Leaf Venture Partners ............................87 New Mountain Capital...................................95, 96, 101 Newport Global Advisors ..............................39 Nordic Capital..................................................91, 92, 94 NorthEdge Capital..........................................46

O Oak Hill Advisors .............................................76 Oaktree Capital Management ......................19, 20,29, 30, ............................................................................32, 33, 35, ............................................................................73, 74, 95, 99 Observatory .....................................................61 Odyssey Investment Partners........................31, 33 Old Mutual .......................................................61 Olds, Peter (Actis) ............................................7, 9, 10 OrbiMed Advisors...........................................83

P Paciﬁc Road Private Equity.............................58 PAI Partners......................................................45 Palladium Equity Partners ..............................97 Park Square Capital Partners .........................34 Partners Group ...............................................61 , 62 Patria .................................................................95 Patron Capital ..................................................45, 46 Peak Rock Capital............................................55, 56, 57 Perella Weinberg .............................................19, 59, 119, ............................................................................120 Permira..............................................................15, 16, 18, ............................................................................109, 130 Pershing Square .............................................73 Pharos Capital..................................................39 Phoenix Property Investors ............................17 PIMCO ..............................................................19, 91 Platinum Equity................................................95, 99 Portfolio Advisors ............................................18 Praesidian Capital ...........................................87 Primavera Capital ............................................67 Private Equity Growth Capital Council.........31 Procuritas Partners ..........................................57 ProLogis,...........................................................59 Providence Equity Partners............................29, 31, 39, 92, ............................................................................93, 119 Public Sector Pension Investment Board (PSP).......................................................112

R Raine Group (The) ..........................................13, 14 REAL Infrastructure Partners ........................131 Resevoir Capital...............................................73 Resource Capital Funds..................................81, 82, 84, 85 Ridgemont Equity Partners............................83 Risk Capital Partners .......................................48 Roark Capital Management ...........................74, 75 Rothschild Debt Fund Management ............130 Roundtable Healthcare Partners...................19, 20 RREEF................................................................16,18 RRJ Capital .......................................................91 Rubenstein, David (Carlyle) ...........................10

S Saratoga Capital..............................................58 Scale Venture Partners ...................................84 Scottish Equity Partners .................................62 Scottish Widows .............................................60 Secured Capital Investment Management Company Ltd...........................65 Securities & Exchange Commission (SEC) ...8, 11, 19, 20, ............................................................................21, 22, 24, 32,

............................................................................42, 120, 133 Securities Industry and Financial Markets Association (SIFMA) .............................................................19, 23 Sequoia Capital ...............................................131 SilkRoad ............................................................67 Silver Creek Capital Management ................112 Silver Lake.........................................................95, 96, 97 Social Security Fund (China)...........................71 Société Générale.............................................94 Star Asia ............................................................18 STAR Capital Partners.....................................48 Starwood Capital Group ................................55 State of New Jersey ........................................39 State Street.......................................................59, 60 Sterling Investment Partners..........................101 Sterling Partners ..............................................81, 83, 85 Stirling Square Capital Partners ....................130 Stone Point Capital .........................................111, 112 Stonepeak Infrastructure Partners ................97 Summit Partners ..............................................55 Swiss Re Private Equity Partners (SRPEP) .....93, 94 Sycamore Partners ..........................................98

T Tailwind Capital................................................19, 20 Tata Capital.......................................................15, 16, 18 Teacher Retirement System of Texas (Texas Teachers) ....................................39, 42 Technology Crossover Ventures ....................98 Tenaska .............................................................31 Terra Firma........................................................58 Thiel , Peter .......................................................111 Third Point.........................................................31 Thoma Bravo ....................................................55, 56, 57 Thomas H Lee Partners ...................................92, 93 Thompson Street Capital Partners ................56 Tischman Speyer..............................................31 TowerBrook ......................................................73, 74, 75 TPG ....................................................................13, 14, 91 Trailstone ..........................................................112, 113 Tremont Group ................................................111 Turk Ventures Advisory Limited .....................67 Turkven..............................................................66 TVV Capital.......................................................87

U U.S. National Venture Capital Association (NVCA).........................................84 UBS AG .............................................................60 Unicredit Bank AG ..........................................47 Unigestion ........................................................62 UNIQA Versicherungen AG ..........................113 Unitas Capital...................................................14 US Treasury ......................................................32

V Valar...................................................................111 ValueAct ...........................................................73 Victoria Capital Partners.................................13, 14 Victory Capital Management ........................20 Vinci Partners ...................................................31 Vision Brazil Investments ................................130 Vista Equity ......................................................95 Vitruvian Partners ............................................55, 56, 58 VTB Capital ......................................................59

W W Capital ..........................................................82 Walter Investment Management Corporation .............................111 Water Street Healthcare Partners .................57 Wellcome Trust ................................................140 Wellspring Capital...........................................73 Willowridge Partners ......................................87 Windjammer Capital Investors ......................56 WL Ross & Co...................................................119

Y Yunfeng Capital ...............................................95 , 100

LAWDRAGON INSIGHTS 144 / lawdragon

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[ LAW FIRM AND LAWYER INDEX ] A

Akin Gump .......................................................61, 62 Ashurst ..............................................................130

B Berwin Leighton Paisner.................................85

C Cleary Gottlieb Stein & Hamilton..................2, 13-14 Clifford Chance................................................2, 10, 15-18, ............................................................................96, 119, 120, ............................................................................121, 122, 131

D Davis Polk & Wardwell ....................................2, 8, 19-20, ............................................................................21, 25 Debevoise & Plimpton....................................2, 8, 16, 29-34, ............................................................................35, 39 Dewey & LeBoeuf............................................131

F Fried, Frank, Harris, Shriver & Jacobson ......15, 81, ............................................................................130-131

Andrew Ahern (Debevoise & Plimpton) .......33 Ron Aizen (Davis Polk & Wardwell)................19 Michael Albano (Cleary Gottlieb Stein & Hamilton).............................................13 Warren Allan (King & Wood Mallesons SJ Berwin) ......................................45, 48 Debra Allen (Ropes & Gray)............................91 Benjamin Aller (King & Wood Mallesons SJ Berwin).............45 Marwan Al-Turki (Debevoise & Plimpton) ....29 Javier Amantegui (Clifford Chance) ..............15 Alex Amos (Macfarlanes) ................................61, 62, 63 Arthur Andersen (Ropes & Gray)...................93 Gavin Anderson (Debevoise & Plimpton) ....29, 34 James Anderson (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)..................111, 113 John Anderson (Debevoise & Plimpton) ......29 Jeanne Annarumma (Simpson Thacher & Bartlett).........................95 Alexandrine Armstrong-Certfontaine (King & Wood Mallesons SJ Berwin).............45 Jonathan Axelrad (Goodwin Procter) ...........131 John Ayer (Ropes & Gray)...............................91, 92 David Azcue (Simpson Thacher & Bartlett)..100

Gibson Dunn & Crutcher................................29 Goodwin Procter .............................................131

Laura Bader (Kirkland & Ellis) .........................55 Mark Baldwin (Macfarlanes) ...........................61 Harry Ballan (Davis Polk & Wardwell) ............19 Bridget Barker (Macfarlanes) .........................61, 62 Lawrence Barshay (Fried, Frank, Harris, Shriver & Jacobson) ........................................130 Phil Bartram (Travers Smith) ...........................2, 8, 132-141 Howard Beber (Proskauer Rose)....................81, 83 Ann Becchina (Davis Polk & Wardwell) .........19 Gregg Beechey (King & Wood Mallesons SJ Berwin) .........................................................45 Jeremy Bell (Ashurst).......................................130 Thomas Bell (Simpson Thacher & Bartlett)...2, 8, 10, 95, ............................................................................96, 101-105 Michael Belsley (Kirkland & Ellis) ...................55, 56 Melissa Bender (Ropes & Gray) .....................91 Nick Benson (Latham & Watkins)...................16, 119, 120, ............................................................................131 Marc Benzler (Clifford Chance) ......................15 Stephanie Berdik (Proskauer Rose) ...............84 David Berman (Macfarlanes)..........................61 Jeff Berman (Clifford Chance)........................15, 18 Kenneth Berman (Debevoise & Plimpton) ...29, 32 Erica Berthou (Debevoise & Plimpton) .........2, 8, 29, 30, ............................................................................35-38 Susan Betteridge Baker (Davis Polk & Wardwell) ..................................19 Bridget Bettigole (Ropes & Gray)..................91 Cecile Beurrier (Debevoise & Plimpton).......29 Peter Bevan (Linklaters)...................................59 Marc Biamonte (Ropes & Gray) .....................91, 93 Stephanie Biggs (Kirkland & Ellis)..................55, 58 Jonathan Blake (King & Wood Mallesons SJ Berwin) ......................................45, 46 Andrew Blau (Davis Polk & Wardwell) ...........19 Robert Blaustein (Kirkland & Ellis) .................55 James Board (Ropes & Gray)..........................94 Ira Bogner (Proskauer Rose) ...........................81, 84-85 Alison Bomberg (Ropes & Gray)....................91 Darca Boom (Ropes & Gray) ..........................91 Pamela Boorman (Debevoise & Plimpton)...29 Lorna Bowen (Linklaters) ................................59, 60 Scott Bowie (Linklaters)...................................59, 60 Patrick Brandt (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates) .......111 William Brashares (Kirkland & Ellis) ...............55 Christopher Braunack (Kirkland & Ellis) ........55, 58 Stephanie Breslow (Schulte Roth & Zabel) ...131 Josef Brinkhaus (Clifford Chance)..................15 Martin Brockhausen (King & Wood Mallesons SJ Berwin) ......................................45 Richard Bronstein (Paul, Weiss, Rifkind, Wharton & Garrison) ......................................73 Jason Brown (Ropes & Gray) ..........................91, 93 John Budetti (Kirkland & Ellis) ........................55 Jennifer Burleigh (Debevoise & Plimpton) ...29, 30-31

K Kaye Scholer ....................................................59 King & Wood Mallesons SJ Berwin...............2, 8, 45-48, ............................................................................49, 52, 82, 85 Kirkland & Ellis .................................................2, 55-58, 82, ............................................................................85, 119, 122, ............................................................................131

L Latham & Watkins............................................119, 120, 131 Linklaters ..........................................................2, 59-60

M Macfarlanes......................................................2, 61-63, 111, ............................................................................112 Mayer Brown ....................................................81 MJ Hudson .......................................................45

O O’Melveny & Myers.........................................2, 8, 65-67, ............................................................................69, 92

P Paul, Weiss, Rifkind, Wharton & Garrison ....2, 8, 73-76, ............................................................................77 Proskauer Rose ................................................2, 8, 45, ............................................................................81-85, 87

R Ropes & Gray ...................................................2, 91-94

S Simpson Thacher & Bartlett...........................2, 8, 10, 16, ............................................................................95-100, 101, ............................................................................107 Schulte Roth & Zabel ......................................74, 131 Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates ............................................................................2, 8, 111-113, ............................................................................115 Speechly Bircham............................................45

T Travers Smith ....................................................2, 8, 133, 137

W Weil, Gotshal & Manges .................................2, 16, 119-122, ............................................................................123, 131 White & Case ...................................................92, 94

Lawyers A Howard Adler (Clifford Chance) ....................15 Jonathan Adler (Debevoise & Plimpton) ......33 Jonathan Adler (Fried, Frank, Harris, Shriver & Jacobson) ............................131

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C John Caccia (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)..................2, 8, 111, 112, ............................................................................114-117 Emidio Cacciapuoti (King & Wood Mallesons SJ Berwin).............45

Lawrence Cagney (Debevoise & Plimpton) .29 Woodrow Campbell (Debevoise & Plimpton)..................................29 Nigel Campion Smith (Latham & Watkins)...131 Sherri Caplan (Debevoise & Plimpton) .........29, 31 Richard Catalano (Clifford Chance)...............15 Lisa Cawley (Kirkland & Ellis) ..........................58 Caroline Chabrerie (Proskauer Rose) ............81 Margaret Chamberlain (Travers Smith).........137 Geoffrey Chan (Ropes & Gray) ......................91, 92, 94 Kalley Chan (King & Wood Mallesons SJ Berwin).............45 Lynn Chan (Proskauer Rose) ...........................81 Yvonne Chan (Paul, Weiss, Rifkind, Wharton & Garrison) .......................................73 Edouard Chapellier (Linklaters) .....................59 Laura Charkin (King & Wood Mallesons SJ Berwin) ......................................45 Bryan Chegwidden (Ropes & Gray) ..............91, 93 Sarah Cherry (Proskauer Rose) ......................81 Thomas Chevalier (King & Wood Mallesons SJ Berwin).............45 Alisa Chhoa (Macfarlanes) ..............................61 Albert Cho (Weil, Gotshal & Manges) ..........119, 122 Erin Cho (Davis Polk & Wardwell) ..................19 Gerard Citera (Davis Polk & Wardwell) .........19 Barton Clark (Latham & Watkins)...................131 Nigel Clark (Weil, Gotshal & Manges) ..........16, 119, 120, ............................................................................121 Timothy Clark (O’Melveny & Myers)..............66, 67 Steven Clemens (Kirkland & Ellis) ..................55 Dean Collins (O’Melveny & Myers) ...............67 Xavier Comaills (Clifford Chance) ..................15, 16 Cliff Cone (Clifford Chance) ...........................15, 18 Alexandra Conroy (Kirkland & Ellis)...............55 Elizabeth Conway (Linklaters) ........................59 Mary Conway (Davis Polk & Wardwell) .........19 Jonathan Cooklin (Davis Polk & Wardwell)...19 Jennifer Grant Cooper (Davis Polk & Wardwell) ..................................19 Tim Cornick (Macfarlanes) ..............................61, 63 Barrie Covit (Simpson Thacher & Bartlett) ...95, 96-97 Jeffrey Crandall (Davis Polk & Wardwell)......19 John Creed (Simpson Thacher & Bartlett) ...95, 99 Damien Crossley (Macfarlanes) .....................61, 62 John Crowley (Davis Polk & Wardwell)..........19 Simon Crown (Clifford Chance) .....................15 Heather Cruz (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111, 112 Philip Culhane (Simpson Thacher & Bartlett).........................95, 100 Stephen Culhane (Kaye Scholer) ...................59

D John Daghlian (O’Melveny & Myers).............46, 65, 66 Shawn D’Aguiar (King & Wood Mallesons SJ Berwin).............45, 47 Anand Damodaran (Ropes & Gray)...............91, 92, 94 Arnaud David (King & Wood Mallesons SJ Berwin).............45 Sarah Davidoff (Ropes & Gray) ......................91 Alexandra Davidson (Clifford Chance) .........17 Eric Davoudet (Clifford Chance) ...................15 Matthew Dean (Kirkland & Ellis) ....................55 Patrick Deasy (King & Wood Mallesons SJ Berwin).............45, 47 Thomas DeCapo (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Luigi DeGhenghi (Davis Polk & Wardwell) ...19 Jonathan de Lance-Holmes (Linklaters) .......59, 60 Rodrigo Delcourt (Linklaters) .........................59 Pamela Delphey (Ropes & Gray) ...................91 Nicholas Di Crescenzo (Kirkland & Ellis) .......55 Samuel Dimon (Davis Polk & Wardwell) .......19 Isabel Dische (Ropes & Gray).........................91 Michael Doherty (Ropes & Gray)...................91 Michaela Dohoney (Ropes & Gray) ...............91 Justin Dolling (Kirkland & Ellis).......................46, 55, 58 James Donaghue (Goodwin Procter) ...........131 John Douglas (Davis Polk & Wardwell) .........19 Kate Downey (Kirkland & Ellis) .......................55, 57 Alan Du (King & Wood Mallesons SJ Berwin).............45 Nathalie Duguay (King & Wood Mallesons SJ Berwin).............45 Francisco Duque (Linklaters) ..........................59

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Gareth Earl (Simpson Thacher & Bartlett) ....95, 99 Quirine Eenhorst (Clifford Chance)...............15 Andrew Ehrlich (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 David Eisman (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Thomas Elser (Linklaters).................................59 Pamela Lawrence Endreny (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Jane Engelhardt (Debevoise & Plimpton) ....29 Susan Ervin (Davis Polk & Wardwell) .............19 Bruce Ettelson (Kirkland & Ellis).....................55, 56 Kevin Evanich (Kirkland & Ellis) ......................55

F Jason Factor (Cleary Gottlieb Stein & Hamilton)................13 John Fadely (Weil, Gotshal & Manges).........122 Anna Fallowﬁeld (Kirkland & Ellis) .................55 Lucy Farr (Davis Polk & Wardwell) .................19 Meyer Fedida (Cleary Gottlieb Stein & Hamilton)................13 Matthias Feldmann (Clifford Chance)...........15, 18 Daniel Finkelman (Proskauer Rose) ...............81 Roberto Finzi (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Edmond FitzGerald (Davis Polk & Wardwell) ..................................19 Laurel FitzPatrick (Ropes & Gray) ..................91 Robert Fleder (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 76 Hayden Flinn (King & Wood Mallesons SJ Berwin).............45 Andrew Ford (Linklaters).................................59 James Ford (O’Melveny & Myers)..................67 Amy Fox (Simpson Thacher & Bartlett).........100 Stephen Fox (Weil, Gotshal & Manges)........119, 122 Robert Frastai (Weil, Gotshal & Manges) .....120-121 Lawrence Frishman (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Adam Furber (Simpson Thacher & Bartlett).95, 100 Peter Furci (Debevoise & Plimpton) ..............29, 33

G Andrew Gaines (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Patrick Gallagher (Kirkland & Ellis) ................55 Ed Gander (Weil, Gotshal & Manges)...........2, 16, 119, ............................................................................120, 121, ............................................................................123-129 Steven Gatti (Clifford Chance) .......................15 Robert Gaut (Proskauer Rose) .......................81 James Gee (Weil, Gotshal & Manges) ..........122 Marcy Geller (Simpson Thacher & Bartlett) .95 Michael Gerstenzang (Cleary Gottlieb Stein & Hamilton)................13, 14 Margaret ‘Meg’ Gibson (Kirkland & Ellis) .....55 Sally Gibson (Debevoise & Plimpton) ...........29, 34 Tony Gibson (King & Wood Mallesons SJ Berwin).............45 Simon Gleeson (Clifford Chance) ..................15 Jason Glover (Simpson Thacher & Bartlett) .2, 8, 16, 95, ............................................................................96, 99, ............................................................................106-109 Nick Goddard (Ashurst)..................................130 Josyane Gold (King & Wood Mallesons SJ Berwin).............45, 48 Andrew Goldberg (Debevoise & Plimpton) .29 Jonathan Goldstein (Simpson Thacher & Bartlett).........................95 Edward Gonzalez (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Warren Goodworth (Kirkland & Ellis) ............55 Elizabeth Gottschalk (Kirkland & Ellis) ..........55 Frank Graaf (Clifford Chance) ........................15 Jan Grabbe (Clifford Chance) ........................15 Ashley Greenbank (Macfarlanes)...................61 David Grenker (Kirkland & Ellis) .....................55 Matthew Grifﬁn (Debevoise & Plimpton) .....29 Udi Grofman (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 74-75 Shukie Grossman (Weil, Gotshal & Manges) ..............................120 Mark Gurevich (Ropes & Gray) ......................91 Olga Gutman (Simpson Thacher & Bartlett).........................95, 97 Randall Guynn (Davis Polk & Wardwell)........19

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H Melissa Haley (Ropes & Gray) ........................91 Michael Halford (King & Wood Mallesons SJ Berwin).............45, 46 Ed Hall (King & Wood Mallesons SJ Berwin).............2, 8, 45, 47, ............................................................................49-54 Yehuda Halpert (Debevoise & Plimpton)......29 Gregory Hannibal (Davis Polk & Wardwell)..19 Kevin Hardy (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)..................111 Michael Harrell (Debevoise & Plimpton) ......29, 31 Philip Harris (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111, 112-113 John Hart (Simpson Thacher & Bartlett).......95, 98 Nigel Hatfield (Clifford Chance) ....................15, 16, 17 Joelle Hauser (Clifford Chance) .....................15 Caroline Hayday (Cleary Gottlieb Stein & Hamilton)................13 Philip Heimowitz (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Jason Herman (Simpson Thacher & Bartlett).........................95, 97 Rebecca Hill (Clifford Chance) .......................17 Sean Hill (Proskauer Rose) ..............................2, 8, 81, ............................................................................82-83, 86-90 Susan Hilliard (King & Wood Mallesons SJ Berwin).............45 Robert Hirsh (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 74 Michael Hoffman (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Victor Hollender (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Amanda Holt (Ropes & Gray) .........................91 Michael Hong (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 74, 75 Matthew Howard (Debevoise & Plimpton) ..33 Michele Hsu (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Helena Huang (King & Wood Mallesons SJ Berwin).............45 Brigid Hurley (Ropes & Gray) .........................91 Amran Hussein (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 75

I Vince Ip (Ropes & Gray) ..................................94 David Irvine (Weil, Gotshal & Manges).........119 Bilkis Ismail (King & Wood Mallesons SJ Berwin..............45

J William Jewett (Ropes & Gray) ......................91 Qingjun Jin (King & Wood Mallesons SJ Berwin).............45 Jillian Johnston (Ropes & Gray) .....................91 David Jones (Proskauer Rose)........................81 Meredith Jones (Simpson Thacher & Bartlett).........................95 Scott Jones (Proskauer Rose).........................81, 83-84 Nora Jordan (Davis Polk & Wardwell) ...........2, 8, 19, 20, ............................................................................21-24 Elizabeth Judd (King & Wood Mallesons SJ Berwin).............48 Matthew Judd (Ropes & Gray) ......................91, 92, 94

K Chris Kallos (Kirkland & Ellis) ..........................55, 56 Jonathan Kandel (Weil, Gotshal & Manges) 2, 16, 119, ............................................................................120, 121-122, ............................................................................123-129 Jeffrey Kaplan (Kirkland & Ellis) .....................55 Robert Kaplan (Debevoise & Plimpton) .......29 Kirtee Kapoor (Davis Polk & Wardwell) ........19 Ada Dekhtyar Karczmer (Davis Polk & Wardwell) ..................................19 Jonathan Karen (Simpson Thacher & Bartlett).........................95, 97 Adele Karig (Debevoise & Plimpton) ............29 Rafael Kariyev (Debevoise & Plimpton) ........29 Patrick Karsnitz (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Srinivas Kaushik (Kirkland & Ellis)...................55 Yukako Kawata (Davis Polk & Wardwell) .......19, 20 Matthew Keogh (Linklaters) ...........................59, 60 Lena Kiely (Davis Polk & Wardwell) ...............19

Satish Kini (Debevoise & Plimpton)...............29, 32 Sarah Kirson (Kirkland & Ellis) ........................55 Geoffrey Kittredge (Debevoise & Plimpton)..................................29, 34 Lisa Klar (Simpson Thacher & Bartlett) .........95, 98 Scott Klein (Latham & Watkins)......................131 Rachel Kleinberg (Davis Polk & Wardwell) ...19 Natasha Koffman (Ropes & Gray)..................91 Daniel Kolb (Ropes & Gray)............................91 Jason Kolman (Ropes & Gray) ........................91 Kristine Koren (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Jamin Koslowe (Simpson Thacher & Bartlett).........................95 Nancy Kowalczyk (Kirkland & Ellis)................55 David Kreisler (Weil, Gotshal & Manges) .....121 Christian Kremer (Clifford Chance) ...............15 Mary Kuusisto (Proskauer Rose) ....................81, 84

L Alexandre Lagarrigue (Clifford Chance).......15 Leor Landa (Davis Polk & Wardwell)..............2, 8, 19, 20, ............................................................................25-28 Peter Laybourn (Ropes & Gray) .....................91, 93 Guo Sun Lee (King & Wood Mallesons SJ Berwin).............45 Christopher Leich (Ropes & Gray) .................91 Elizabeth Lenas (Cleary Gottlieb Stein & Hamilton LLP) ........13, 14 Teresa Leung (Clifford Chance)......................18 Jack Levin (Kirkland & Ellis).............................55 David Levy (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Jonathan Lewis (Debevoise & Plimpton) ......29 Tim Lewis (Travers Smith)................................137 Bruce Lieb (Proskauer Rose)...........................81 Sara Lieberman (Ropes & Gray).....................91 Kyoko Takahashi Lin (Davis Polk & Wardwell) ..................................19 Tamasin Little (King & Wood Mallesons SJ Berwin).............45, 48 Carol Liu (Kirkland & Ellis)...............................55, 58 Andrew Loan (Macfarlanes)............................61 Timothy Long (Debevoise & Plimpton) .........29 Diana Lopo (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Leslie Lowenbraun (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Debra Lussier (Ropes & Gray) ........................91

M John MacGarty (Kirkland & Ellis) ...................55, 57 Gary Mandel (Simpson Thacher & Bartlett) .95 Raj Marphatia (Ropes & Gray) ........................91, 92 Marco Masotti (Paul, Weiss, Rifkind, Wharton & Garrison) .2, 8, 73, ............................................................................77-80 Arnold May (Proskauer Rose) .........................81, 84 David Mayo (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Stephanie McCavitt (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 75 William McCormack (Ropes & Gray).............91 Brian McDaniel (Goodwin Procter) ...............131 Mark McFarlane (King & Wood Mallesons SJ Berwin).............45 Peter McGowan (Proskauer Rose) .................85, 85 Jeanine McGuinness (Davis Polk & Wardwell) ..................................19 Jean McLoughlin (Davis Polk & Wardwell) ...19 Jim McNally (Schulte Roth & Zabel) ..............131 Bill McRae (Cleary Gottlieb Stein & Hamilton LLP) ........13 Anthony McWhirter (Debevoise & Plimpton)..................................29 Stephen Mears (Proskauer Rose)...................81, 83 Daniel Meehan (Kirkland & Ellis)....................55 Nancy Mehlman (Simpson Thacher & Bartlett).........................95 Mark Mifsud (Kirkland & Ellis) ........................46, 55, 57 Jay Milkes (Ropes & Gray)...............................91 Ann Milner (Ropes & Gray) .............................91, 92-93 Vadim Mahmoudov (Debevoise & Plimpton)..................................29 Catherine Martin (Davis Polk & Wardwell) ...19 Craig Medwick (Clifford Chance) ..................15 Katharine Moir (Simpson Thacher & Bartlett).........................95

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lawdragon insights David Moldenhauer (Clifford Chance)..........15 Michael Mollerus (Davis Polk & Wardwell) ...19 Michelle Moran (Ropes & Gray).....................91 John Muno (Kirkland & Ellis)...........................55, 56-57 Timothy Mungovan (Proskauer Rose) ...........81 Nadia Murad (Kirkland & Ellis) .......................55 Gary Murphy (Debevoise & Plimpton)..........29 Jordan Murray (Debevoise & Plimpton) .......2, 8, 29, 30, ............................................................................31, 39-44

N Annette Nazareth (Davis Polk & Wardwell) ..19 Malcolm Nicholls (Proskauer Rose) ...............81, 83 Graham Nicholson (MJ Hudson) ...................45 Michael Nooney (Simpson Thacher & Bartlett).........................95, 98 Amanda Nussbaum (Proskauer Rose) ..........81

O Joshua O’Donnell (Kirkland & Ellis) ...............55 Jessica O’Mary (Ropes & Gray)......................91 Brad Okun (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Regina Olshan (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 David Olstein (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 John O’Neil (Kirkland & Ellis)..........................55, 57 Nick O’Neill (Clifford Chance) .......................15 Karin Orsic (Kirkland & Ellis) ...........................55 Andrew Ostrognai (Debevoise & Plimpton) 29, 34

P Robin Painter (Proskauer Rose) ......................81, 82 Benjamin Panter (Kirkland & Ellis)..................55 Charles Parsons (Proskauer Rose) .................81 Ajay Pathak (King & Wood Mallesons SJ Berwin).............45, 47 Sonya Pauls (King & Wood Mallesons SJ Berwin).............45 James Perry (Ashurst)......................................130 Marc Persily (Proskauer Rose) ........................81 Stephen Pevsner (King & Wood Mallesons SJ Berwin).............45 Craig Phillips (Davis Polk & Wardwell) ..........19 George Pinkham (King & Wood Mallesons SJ Berwin) ............45 Dan Pipe (Macfarlanes)...................................61 Jonathan Pittal (King & Wood Mallesons SJ Berwin).............45, 47 Jamiel Poindexter (Proskauer Rose) ..............81, 84 Richard Prins (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111

Q Daniel Quinn (O’Melveny & Myers)...............65

R David Raab (Latham & Watkins) ....................131 Robert Raymond (Cleary Gottlieb Stein & Hamilton LLP) ........13, 14 Susan Reibstein (Davis Polk & Wardwell) .....19 Yong Ren (Proskauer Rose) .............................81 John Reynolds (Davis Polk & Wardwell)........19 Walter Ricciardi (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Brett Robbins (Ropes & Gray) ........................91 Brian Robbins (Simpson Thacher & Bartlett).........................95 Richard Robinson (Debevoise & Plimpton) ..29, 33 Stephen Robinson (Macfarlanes) ..................61, 62 Don Rocap (Kirkland & Ellis)...........................55 Oliver Rochman (Proskauer Rose) .................45, 81 Anastasia Rockas (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Isabel Rodriguez (King & Wood Mallesons SJ Berwin).............45 Peter Rosenberg (Ropes & Gray)...................91 Kenneth Rosh (Fried, Frank, Harris, Shriver & Jacobson) ....130

Katrina Rowe (Debevoise & Plimpton)..........29, 32 Larry Jordan Rowe (Ropes & Gray) ...............91 Gregory Rowland (Davis Polk & Wardwell) ..19 A. Kelly Ryan (Kirkland & Ellis)........................55

S Lance Sacks (Clifford Chance) .......................15 Monica Sah (Clifford Chance) ........................15 Reena Agrawal Sahni (Davis Polk & Wardwell) ..................................19 Eriko Sakata (Linklaters) ..................................59 Jeff Samuels (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Tim Sanders (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Glenn Sarno (Simpson Thacher & Bartlett) ..95, 97 Matthew Saronson (Debevoise & Plimpton)..................................29 Gerard Saviola (Clifford Chance)....................15, 16 Geoffrey Scardoni (King & Wood Mallesons SJ Berwin).............45 Christina Schatz (King & Wood Mallesons SJ Berwin).............45 James Schell (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111, 113 Aaron Schlaphoff (Attorney Advisor Fellow, SEC)......................19 David Schnabel (Debevoise & Plimpton) .....29 Kai-Niklas Schneider (Clifford Chance) ........15, 16 Peter Schuur (Debevoise & Plimpton)...........29, 33 David Schwartz (Debevoise & Plimpton)......29, 32, 131 Ian Schwartz (Fried, Frank, Harris, Shriver & Jacobson) ....131 Lanny Schwartz (Davis Polk & Wardwell) ......19 David Seiden (Fried, Frank, Harris, Shriver & Jacobson) ....131 Seema Shah (Simpson Thacher & Bartlett) ..100 Jyoti Sharma (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 75 David Shevlin (Simpson Thacher & Bartlett) 95, 98 Mark Shipman (Clifford Chance) ...................15, 17 Chi Shum (Simpson Thacher & Bartlett) .......95 David Sicular (Paul, Weiss, Rifkind, Wharton & Garrison) ..73, 75-76 Rebecca Silberstein (Debevoise & Plimpton)..................................29, 32 Marco Simonis (Clifford Chance) ...................15, 74 Kate Simpson (Proskauer Rose) .....................81, 82, 85 Stephen Sims (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111, 112, 113 Roger Singer (Clifford Chance)......................15, 18 Minny Siu (King & Wood Mallesons SJ Berwin).............45 Richard Small (Davis Polk & Wardwell)..........19 Aubry Smith (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates)...................................111 Edward Smith (Linklaters) ...............................59, 60 Joseph Smith (Schulte Roth & Zabel) ............131 Harriott Snyder (Ropes & Gray) .....................91 Karen Sodke (Kirkland & Ellis) ........................55, 57 Jonathon Soler (Weil, Gotshal & Manges) ...120 Justin Solomon (Kirkland & Ellis) ...................55 Scott Sontag (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Joshua Soszynski (Kirkland & Ellis) ................55 Jennifer Speigel (Paul, Weiss, Rifkind, Wharton & Garrison ... 73 Stephanie Srulowitz (Weil, Gotshal & Manges)...............................121 Anthony Stewart (Clifford Chance)................15, 17 Justin Storms (Linklaters) ................................59, 60 Mark Sugino (Ropes & Gray) ..........................91 John Sullivan (King & Wood Mallesons SJ Berwin).............45 Michael Suppappola (Proskauer Rose) .........81, 83 Larry Sussman (O’Melveny & Myers) ............2, 8, 66-67, ............................................................................69-71 Robert Sutton (Kirkland & Ellis) .....................55

Margaret Tahyar (Davis Polk & Wardwell).....19 Mark Tannenbaum (Ropes & Gray) ...............91 Ian Taplin (Kirkland & Ellis)..............................55 David Tegeler (Proskauer Rose).....................81, 82 Simon Thomas (Macfarlanes).........................61, 62 Pramod Thummala (Linklaters) ......................59 Sally Thurston (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Danforth Townley (Attorney Fellow, SEC)....19 Deborah Tuchman (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Jane Tuckley (Travers Smith) ..........................137

V Cindy Valentine (King & Wood Mallesons SJ Berwin).............45, 47 Zaid Van Giffen (Ropes & Gray) .....................91 Nigel van Zyl (Proskauer Rose).......................45, 46, 81, ............................................................................82, 85 Ate Veenstra (Clifford Chance) ......................15 Alexander Vogt (Linklaters) ............................59

W Charles Wachsstock (Debevoise & Plimpton)..................................29 W. Kirk Wallace (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Piers Warburton (Ashurst) ..............................130 Richard Ward (Debevoise & Plimpton) .........29, 34 Richard Watkins (Kirkland & Ellis) ..................46, 55, 57 David Watson (Goodwin Procter) .................131 Joel Wattenbarger (Ropes & Gray) ...............91 Morri Weinberg (Ropes & Gray) ....................91, 93 William Welke (Kirkland & Ellis)......................55 Christopher Wells (Proskauer Rose) ..............81 Josh Westerholm (Kirkland & Ellis) ................55 Gavin White (Skadden, Arps, Slate, Meagher & Flom LLP & Afﬁliates)...................................111 Ying White (Clifford Chance)..........................15, 17 Lindsey Wiersma (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Solomon Wifa (O’Melveny & Myers) .............66 David Wilson (Davis Polk & Wardwell) ..........19 Jennifer Wilson (Kirkland & Ellis)....................55 Sam Wilson (Simpson Thacher & Bartlett) ...100 Lawrence Witdorchic (Paul, Weiss, Rifkind, Wharton & Garrison) ..73 Simon Witney (King & Wood Mallesons SJ Berwin).............45, 48 Barry Wolf (Weil, Gotshal & Manges) ...........120 Michael Wolitzer (Simpson Thacher & Bartlett).........................95, 96 Markus Wollenhaupt (Kirkland & Ellis) ..........59 Alistair Woodland (Clifford Chance) .............15 Duncan Woollard (King & Wood Mallesons SJ Berwin).............45, 46 Andrew Wright (Kirkland & Ellis)....................55 John Wright (Davis Polk & Wardwell) ............19 Thomas Wuchenich (Simpson Thacher & Bartlett).........................95, 98-99

Y Victoria Younghusband (Speechly Bircham) ..........................................45 Shubing Yuan (Cleary Gottlieb Stein & Hamilton LLP) ........13 David Yudin (Cleary Gottlieb Stein & Hamilton LLP) ........13

Z Sven Zeller (Clifford Chance)..........................15 Yi Zhang (King & Wood Mallesons SJ Berwin).............45

T Jeffrey Tabak (Weil, Gotshal & Manges).......120

LAWDRAGON INSIGHTS 148 / lawdragon

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LAWDRAGON INSIGHTS A new series of quarterly magazines that combines factual data, editorial analysis of leading ﬁrms in a practice or sector and articles on market trends & legal developments. Market Insights

We conduct independent research with leading corporate counsel and clients, and may ask law ﬁrms for supplementary information and contacts. The result is analysis that is truly independent and driven by law ﬁrm clients.

People Insights

It’s more than just a listing. It goes much deeper – detailing deals, cases, legal developments and the lawyers who work on them from leading partners to senior associates. The content is enhanced by real quotes from clients to add color and depth to the practice group and lawyer biographies.

Technical Insights

We undertake detailed technical interviews with leading corporate counsel and lawyers. These are completely editorially sourced and anatomize a particular trend, matter or legal development in the practice area or sector.

Visual Insights

As with all Lawdragon content, our Insights series is characterized by the most striking commissioned photography and art design in the legal media space.

Insightful Distribution

Insights magazines are distributed free of charge to leading clients in the sectors we cover across the globe. Each distribution list is researched from scratch to make sure it is accurate and up to date. Print distribution ranges from 1000-10,000, dependent on subject. Digital distribution is 25,000-plus readers. We send clients in each sector newsletter updates with new original content and news twice a year. For further details on the series please contact Publisher, Katrina Dewey. katrina@lawdragon.com www.lawdragon.com

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2005