As the hedge fund industry matures, so there is an increasing move towards consolidation and sophistication, and there is a growing business for lawyers who can advise funds on mergers and acquisitions of competitors, as well as listings of their businesses on the capital markets.
Mark Brady has just moved from the London office of Crowell & Moring, a firm known for its hedge fund work historically, to the UK law firm Eversheds. That firm boasts one of the leading regulated investment funds practices in the country, and Brady believes that the convergence of the two sectors means that the alternative managers will be looking to do the same sorts of deals that the regulated sector advisers have been doing for years.
He says, “The industry now is becoming separated into pure hedge fund groups that started as start-ups, and institutions that are moving into the hedge fund field. There is a lot of demand from the latter, and Eversheds act for so many of them that it’s fairly compelling to build this.
“There’s also quite a lot of M&A activity at the moment and we are involved in quite a big way in that. And there are some IPOs for hedge fund managers listing, which is taking off, and joint-ventures for work outside
of Europe.”
The firm advised Schroders on the acquisition of NewFinance Capital, a manager of funds of hedge funds, for $142m, in a deal that plays right into the hands of Brady’s strategy.
On the listing side, it is not necessarily the specialist hedge fund firms that pick up the work, but rather those that have focused on capital markets. Norton Rose, for example, advised Collins Stewart as nominated adviser and RAB Special Situations as issuer when the company listed on London’s Alternative Investment Market in May 2005. The company aims to provide exposure to a Cayman-based hedge fund, and Norton Rose is one of the leading law firms on AIM floats, as well as having considerable investment management expertise.
Similarly, M&A law firms with a new focus on the hedge funds market are picking up some of the big deals. Ashurst, for example, advised Man Group and its Swiss subsidiary RMF Investment Products a few years back on Man’s acquisition of a majority equity interest in Westport Private Equity and a minority interest in Parallel Ventures Managers Limited, deals which gave Man a new interest in the growing private equity fund of funds market. Since then, Ashurst has been looking to do more and more work for the funds. But while the bigger corporate law firms battle for their share of the market, the traditional hedge fund and asset management experts are similarly struggling to keep a grip on a dealflow that should be their own.
Lovells worked on the structuring, establish-ing and listing on AIM of Promethean, a new special situations fund and manager. And Shearman & Sterling, the New York law firm, worked for Permal Group in the acquisition of 80% of its stock by Legg Mason.
Permal is one of the biggest fund of funds managers, and Shearman’s head of asset management in New York, Paul Schreiber, says that kind of work plays perfectly the firm’s strategy. “The Legg Mason deal is the sort of thing that draws on our hedge funds practice, our M&A team, and our finance capability. Our offering is very much to go across the board.”
The corporate work involved in the reorganisations and restructuring of funds is also becoming increasingly lucrative for lawyers. For the offshore law firms in Cayman, Jersey and Guernsey, this can be a large part of their business.
At Appleby Hunter Bailhache, for example, there are close to 30 funds lawyers spread across Cayman, Bermuda, London, Hong Kong and the British Virgin Islands, and the firm provides legal advice in Cayman, Bermuda and BVI law.
Appleby recently gave advice across those three jurisdictions to help Caledonia set up a joint venture to acquire Liberty Ermitage’s fund management business. Other clients include Brummer, Thames River and Polar Capital. Similarly, Channel Islands law firm Carey Olsen can spend as much time on reorganisation and restructuring work for funds as it does on launches.
But while such corporate activity by the funds themselves is attractive work, law firms really need the regulatory understanding and background if they are to capture it, according to the lawyers.
William Charnley, a senior corporate partner in the London office of Chicago’s McDermott Will & Emery, says, “You do need to understand the regulatory regime in order to do the corporate stuff. We have done quite a lot of structuring for the funds, putting together tax efficient structures, and having an understanding of that is important when it comes to advising them on M&A.”
As the alternative asset management sector comes of age, expect more deals between funds, and more lawyers fighting to do it. The traditional hedge funds law firms are ready for a battle with the established corporate law firms now starting to show an interest.
There are few industries that can offer lawyers such an attractive alternative to private practice, but for those that make their livings advising investment fund managers, the lure of jumping to a job with a hedge fund can be compulsive. The interrelation between the two employers is long and star-studded: Peter Astleford, the highly successful lawyer to investment fund managers at Dechert, joined the law firm from a career at Invesco, where he was first group legal adviser and then head of corporate services. Similarly Stuart Martin, the other big-name partner in Dechert’s team, was in-house counsel at Baring Asset Management for four years before moving to the law firm.
Going the other way, and you can see the hedge funds increasingly attracting the very best lawyers around to make the switch. In London, Justin Bickle has just joined Oaktree Capital Management on the business side, despite the promise of a lucrative career advising the funds as a partner at Cadwalader Wickersham & Taft. Gay Bronson, one of the leading lawyers advising on high yield debt in the UK office of Latham & Watkins, has just left to join Silverpoint Capital – a US hedge fund specialising in rescue financing and a client of the firm – as its first London-based in-house counsel.
In the US, Mark Neporent, the chief operating officer, general counsel and senior managing director at Cerberus Capital Management, is a former partner at New York’s leading hedge fund law firm Schulte Roth & Zabel, having jumped ship in 1998. John Frank, the managing director, principal and general counsel at Oaktree, was a partner in Los Angeles firm Munger Tolles & Olson before he moved in 2001.
So what do lawyers add to the mix? “Even if you join a fund on the business side, the fact that you are a lawyer means that people ask you legal opinions,” says one lawyer who has made the switch and did not wish to be named. “If you are a stick in the mud academic black-letter lawyer, there is no attraction for a fund in hiring you. But lawyers who can help with execution can be quite attractive. If you are trained as a lawyer you think in a different way, and it’s a good skill to have as part of the multi-disciplinary fund team, along with a smart private equity guy, a banker, an M&A expert, a mathematician, and so on.”
For law firms, the lure of in-house positions can make it difficult to retain the most talented lawyers. Matt Huggett is a senior associate lawyer in Allen & Overy’s investment funds practice. He says, “One of the biggest difficulties in running our business is keeping the young associates motivated. I have a lot of friends in hedge funds as general counsel, and they are doing very well. “We try and look at asset management as a holistic, interesting business. We want to do things such as helping the big investment banks spin out their proprietary traders, seeding, and getting up and running. The problem is, if you have an associate doing repetitive fund formation work, after they have done it two or three times, with each one taking six or eight weeks, then halfway through the year they are bored. It can be so process-driven. So we try hard not to run our business like that.”
Lawyers working for the hedge funds say the legal talent within the funds themselves is getting increasingly high-quality, as the funds expand and take on lawyers to deal with an ever-more regulated existence. Amongst the leading in-house counsel in the hedge funds market are, according to private practice lawyers canvassed: Sean Cote, the general counsel at Polygon Investment Partners; Jeffrey Blockinger, the chief legal officer at Och-Ziff Capital Management Group; Victoria Parry, the senior legal counsel at GLG Partners; Alex Underwood at Brevan Howard Asset Management; Morag Law, the legal counsel at Beach Capital Management; and Simon Rockall, counsel at Aspect Capital.
The attraction of the switch can be compelling. For most lawyers, a move to an in-house position with a bank or a corporation involves a sometimes significant drop in a salary, but with hedge funds that is unlikely to be the case. What’s more, the idea of being closely involved with the business can tempt many.
One in-house lawyer says, “You reach a stage in your career as a lawyer, where you have made partner at a fairly young age, and the question is whether you want to be doing the same job in 20 years time. You work hard on deals, and the bill gets paid, and then in some cases you never have any dealings with the company again. You don’t get the upside of the transaction, and you don’t get to finish what you started.”
On the other side of the coin, Dechert is one firm that has focused on hiring lawyers with some experience on the other side of the fence, believing they bring a more rounded approach to the practice of law. After Astleford joined the firm in 1997, he began a drive to act for alternative investment managers, often taking young lawyers out of the regulated manager side and employing them to work for hedge funds that, at that stage, did not have in-house capability. The market has transformed since then though, and nowadays, some of the finest legal talent in the hedge fund industry can be found working for the funds themselves. Attracting and retaining the best lawyers is the new battlefield for the raft of law firms targeting what will surely become a lucrative area of their businesses, assuming the funds don’t start doing all the work themselves.
Mark Brady has just moved from the London office of Crowell & Moring, a firm known for its hedge fund work historically, to the UK law firm Eversheds. That firm boasts one of the leading regulated investment funds practices in the country, and Brady believes that the convergence of the two sectors means that the alternative managers will be looking to do the same sorts of deals that the regulated sector advisers have been doing for years.
He says, “The industry now is becoming separated into pure hedge fund groups that started as start-ups, and institutions that are moving into the hedge fund field. There is a lot of demand from the latter, and Eversheds act for so many of them that it’s fairly compelling to build this.
“There’s also quite a lot of M&A activity at the moment and we are involved in quite a big way in that. And there are some IPOs for hedge fund managers listing, which is taking off, and joint-ventures for work outside
of Europe.”
The firm advised Schroders on the acquisition of NewFinance Capital, a manager of funds of hedge funds, for $142m, in a deal that plays right into the hands of Brady’s strategy.
On the listing side, it is not necessarily the specialist hedge fund firms that pick up the work, but rather those that have focused on capital markets. Norton Rose, for example, advised Collins Stewart as nominated adviser and RAB Special Situations as issuer when the company listed on London’s Alternative Investment Market in May 2005. The company aims to provide exposure to a Cayman-based hedge fund, and Norton Rose is one of the leading law firms on AIM floats, as well as having considerable investment management expertise.
Similarly, M&A law firms with a new focus on the hedge funds market are picking up some of the big deals. Ashurst, for example, advised Man Group and its Swiss subsidiary RMF Investment Products a few years back on Man’s acquisition of a majority equity interest in Westport Private Equity and a minority interest in Parallel Ventures Managers Limited, deals which gave Man a new interest in the growing private equity fund of funds market. Since then, Ashurst has been looking to do more and more work for the funds. But while the bigger corporate law firms battle for their share of the market, the traditional hedge fund and asset management experts are similarly struggling to keep a grip on a dealflow that should be their own.
Lovells worked on the structuring, establish-ing and listing on AIM of Promethean, a new special situations fund and manager. And Shearman & Sterling, the New York law firm, worked for Permal Group in the acquisition of 80% of its stock by Legg Mason.
Permal is one of the biggest fund of funds managers, and Shearman’s head of asset management in New York, Paul Schreiber, says that kind of work plays perfectly the firm’s strategy. “The Legg Mason deal is the sort of thing that draws on our hedge funds practice, our M&A team, and our finance capability. Our offering is very much to go across the board.”
The corporate work involved in the reorganisations and restructuring of funds is also becoming increasingly lucrative for lawyers. For the offshore law firms in Cayman, Jersey and Guernsey, this can be a large part of their business.
At Appleby Hunter Bailhache, for example, there are close to 30 funds lawyers spread across Cayman, Bermuda, London, Hong Kong and the British Virgin Islands, and the firm provides legal advice in Cayman, Bermuda and BVI law.
Appleby recently gave advice across those three jurisdictions to help Caledonia set up a joint venture to acquire Liberty Ermitage’s fund management business. Other clients include Brummer, Thames River and Polar Capital. Similarly, Channel Islands law firm Carey Olsen can spend as much time on reorganisation and restructuring work for funds as it does on launches.
But while such corporate activity by the funds themselves is attractive work, law firms really need the regulatory understanding and background if they are to capture it, according to the lawyers.
William Charnley, a senior corporate partner in the London office of Chicago’s McDermott Will & Emery, says, “You do need to understand the regulatory regime in order to do the corporate stuff. We have done quite a lot of structuring for the funds, putting together tax efficient structures, and having an understanding of that is important when it comes to advising them on M&A.”
As the alternative asset management sector comes of age, expect more deals between funds, and more lawyers fighting to do it. The traditional hedge funds law firms are ready for a battle with the established corporate law firms now starting to show an interest.
There are few industries that can offer lawyers such an attractive alternative to private practice, but for those that make their livings advising investment fund managers, the lure of jumping to a job with a hedge fund can be compulsive. The interrelation between the two employers is long and star-studded: Peter Astleford, the highly successful lawyer to investment fund managers at Dechert, joined the law firm from a career at Invesco, where he was first group legal adviser and then head of corporate services. Similarly Stuart Martin, the other big-name partner in Dechert’s team, was in-house counsel at Baring Asset Management for four years before moving to the law firm.
Going the other way, and you can see the hedge funds increasingly attracting the very best lawyers around to make the switch. In London, Justin Bickle has just joined Oaktree Capital Management on the business side, despite the promise of a lucrative career advising the funds as a partner at Cadwalader Wickersham & Taft. Gay Bronson, one of the leading lawyers advising on high yield debt in the UK office of Latham & Watkins, has just left to join Silverpoint Capital – a US hedge fund specialising in rescue financing and a client of the firm – as its first London-based in-house counsel.
In the US, Mark Neporent, the chief operating officer, general counsel and senior managing director at Cerberus Capital Management, is a former partner at New York’s leading hedge fund law firm Schulte Roth & Zabel, having jumped ship in 1998. John Frank, the managing director, principal and general counsel at Oaktree, was a partner in Los Angeles firm Munger Tolles & Olson before he moved in 2001.
So what do lawyers add to the mix? “Even if you join a fund on the business side, the fact that you are a lawyer means that people ask you legal opinions,” says one lawyer who has made the switch and did not wish to be named. “If you are a stick in the mud academic black-letter lawyer, there is no attraction for a fund in hiring you. But lawyers who can help with execution can be quite attractive. If you are trained as a lawyer you think in a different way, and it’s a good skill to have as part of the multi-disciplinary fund team, along with a smart private equity guy, a banker, an M&A expert, a mathematician, and so on.”
For law firms, the lure of in-house positions can make it difficult to retain the most talented lawyers. Matt Huggett is a senior associate lawyer in Allen & Overy’s investment funds practice. He says, “One of the biggest difficulties in running our business is keeping the young associates motivated. I have a lot of friends in hedge funds as general counsel, and they are doing very well. “We try and look at asset management as a holistic, interesting business. We want to do things such as helping the big investment banks spin out their proprietary traders, seeding, and getting up and running. The problem is, if you have an associate doing repetitive fund formation work, after they have done it two or three times, with each one taking six or eight weeks, then halfway through the year they are bored. It can be so process-driven. So we try hard not to run our business like that.”
Lawyers working for the hedge funds say the legal talent within the funds themselves is getting increasingly high-quality, as the funds expand and take on lawyers to deal with an ever-more regulated existence. Amongst the leading in-house counsel in the hedge funds market are, according to private practice lawyers canvassed: Sean Cote, the general counsel at Polygon Investment Partners; Jeffrey Blockinger, the chief legal officer at Och-Ziff Capital Management Group; Victoria Parry, the senior legal counsel at GLG Partners; Alex Underwood at Brevan Howard Asset Management; Morag Law, the legal counsel at Beach Capital Management; and Simon Rockall, counsel at Aspect Capital.
The attraction of the switch can be compelling. For most lawyers, a move to an in-house position with a bank or a corporation involves a sometimes significant drop in a salary, but with hedge funds that is unlikely to be the case. What’s more, the idea of being closely involved with the business can tempt many.
One in-house lawyer says, “You reach a stage in your career as a lawyer, where you have made partner at a fairly young age, and the question is whether you want to be doing the same job in 20 years time. You work hard on deals, and the bill gets paid, and then in some cases you never have any dealings with the company again. You don’t get the upside of the transaction, and you don’t get to finish what you started.”
On the other side of the coin, Dechert is one firm that has focused on hiring lawyers with some experience on the other side of the fence, believing they bring a more rounded approach to the practice of law. After Astleford joined the firm in 1997, he began a drive to act for alternative investment managers, often taking young lawyers out of the regulated manager side and employing them to work for hedge funds that, at that stage, did not have in-house capability. The market has transformed since then though, and nowadays, some of the finest legal talent in the hedge fund industry can be found working for the funds themselves. Attracting and retaining the best lawyers is the new battlefield for the raft of law firms targeting what will surely become a lucrative area of their businesses, assuming the funds don’t start doing all the work themselves.
