In the last five years, 10 of the 25 leading private equity funds lawyers in the UK have switched firms, with many of them deserting well-established English practices to launch offerings for American firms.
The trend started in 2007, when three partners, led by Mark Mifsud, left SJ Berwin for US firm Kirkland & Ellis. And it has gathered momentum since: the last 12 months have seen various American law firms – including Weil Gotshal & Manges, Proskauer, Ropes & Gray and Skadden Arps Slate Meagher & Flom – bulk up their private funds practices substantially. The largest move saw a four-partner team exit Clifford Chance for Weil, under the leadership of Ed Gander.
For Mifsud, it is little surprise that so many others have followed in his wake. “I could see the way the market was going,” he says. “Every time we acted on a fundraising at SJ Berwin, we needed a US law firm alongside us. In the last decade, private equity has really evolved from being about local UK funds and UK investors to becoming truly global, and very much driven by the needs of US and other international investors. It became a game that was very difficult to play at a purely European firm.”
A broader perspective
Even as the credit crisis has made the fundraising environment increasingly challenging, a flurry of new legislation has made the regulatory landscape more difficult to navigate. As such, clients have become far more discerning about their choice of legal advisers, lawyers say.
Jason Glover, who ran Clifford Chance’s highly successful private funds practice before quitting to launch a European offering for New York’s Simpson Thacher & Bartlett in 2010, says this started happening in 2009, after the downturn.
“Given that the US had historically been, and continues to be, the largest market for investors – as well as the most complex regulatory environment – it was inevitable that managers were looking for advisers who not only understood the US regulatory position, but also had extensive knowledge of applying those rules in practice,” he explains. “Clients wanted to really know what was happening on the ground – and that’s where the UK firms with small or separate US capabilities were struggling, because they just weren’t as experienced at dealing with the day-to-day issues as their US-headquartered competitors,” he explains.
European fundraisings increasingly encountered issues concerning the Dodd- Frank Act, the Volcker Rule, changes to carried interest, SEC rules prohibiting “pay to play”, the JOBS Act, SEC registration and more. So some managers wanted to work with law firms that could give them real comfort on those issues.
At the same time, the US law firms known for their entrenched relationships with large US buyout houses were keen to start offering those clients fundraising capabilities on the ground in Europe – so that they no longer had to pair up with UK law firms to cover the English law aspects of deals.
Nigel van Zyl, a funds lawyer who left SJ Berwin for the London office of New York’s Proskauer last year, says: “US firms are responding to their clients’ needs for a single integrated solution to fundraising arrangements, particularly on global projects. Clients recognise that having two firms working alongside each other creates inefficiencies on what is a critical project for them, and they see that raising capital is global and requires global expertise. Meanwhile European GPs are seeing the merit of working with a single global firm that covers the US, Europe and Asia.”
The result was a perfect storm: a number of US law firms started looking to hire funds lawyers, just as the leading individuals in the sector sought out stronger US offerings for their clients.
Still going strong
But it would be entirely wrong to write off the traditional stalwarts of the European private equity fundraising legal market. Jonathan Blake, who has run the international private funds team at SJ Berwin since the 1980s, points out that the firm knows the European fundraising marketplace better than anyone else – and that the 20-plus partners it has in London committed to the space far outnumbers the two- and three-partner teams being set up elsewhere.
Certainly SJ Berwin’s dominance shows little sign of waning, In the last 12 months, the firm has worked on nearly twice as many funds currently raising (and nearly twice as many funds closed) as its nearest rivals, according to data provider Preqin.
Blake says: “From our point of view, this trend seems to be an amazingly positive development. There are now a whole lot of US law firms that have a couple of funds lawyers… We have always been the largest funds team, and we are now the only team of any substance.”
He adds: “Clients absolutely ask us for US regulatory advice, but it’s not as if no-one has ever heard of US investors before. It’s the most common source of investment in the whole world and it’s a deeply trodden path. To us, it isn’t obvious that one has to have that US capability in the same firm – we are able to choose which law firms to work with, and that’s something we have had experience of doing for many years.”
At UK-headquartered Clifford Chance, which is arguably the most international of all the firms in this space, partner Gerard Saviola agrees: “I think the story that you need a US firm to manage a large international fundraising is a clever but deceptive marketing tool. The fundraising market is international and you need a really global team and a truly global firm. We think the challenges involved in navigating the rapidly evolving regulatory landscape, not just in the US but also in Europe and Asia, are best met by a firm with a platform like ours, with 34 offices in 24 countries and funds experts around the world.”
Clifford Chance continues to act for large fund managers including 3i, Bridgepoint Capital, Permira, Apax Partners and Equistone Partners, the private equity firm that spun out of Barclays Private Equity and is in the process of raising its first independent fund.
Nigel van Zyl has taken work for European private equity fund HgCapital with him from SJ Berwin to Proskauer. According to HgCapital’s general counsel and compliance officer Alison Hampton: “We have used SJ Berwin as our funds lawyers ever since our spin-out from Merrill Lynch in 2000, and latterly Nigel was our relationship partner. We have followed him to Proskauer, and the reason is not because it’s an American law firm, but because Nigel is a great funds lawyer and a trusted adviser with an in-depth knowledge of our business.”
She adds: “On any fundraising you need to have a whole host of additional elements pulled together by your funds lawyers: you need US advice and input, regulatory and tax advice and input, and increasingly you are looking towards Asia and getting views on what matters to Asian investors. You need to get that all from people who are steeped in what’s happening. I don’t believe that only US firms can do that, but what I do see is that if US firms are prepared to invest here and if they are prepared to pull those strands together and offer a really comprehensive offering across all those elements, that’s quite compelling for clients.”
Certainly the US firms that are focused on private equity have built a reputation for impeccable client service, which allows them to offer a one-stop-shop service to private equity managers – from fundraising through to buyouts, exits and beyond. In Europe, funds have traditionally employed different law firms to advise on fundraising to those that they employ to work on deals.
Matthew Judd, a former Clifford Chance partner who joined Ropes & Gray in London last year, says: “Ropes is very focused on private equity. It doesn’t seek to be full service and the strongest firm in the market for all areas. It is much more client-focused than that. So the starting point isn’t that we want to be the leading law firm for finance; it’s that we have a great relationship with Bain Capital, so let’s work out what we need to have to be able to service their needs in the future.”
It is a difference in approach observed by many of the partners that have moved from English to American law firms. Ed Gander at Weil says: “Weil’s London office is built around private equity, and Weil’s managing partner, Barry Wolf, is himself a private funds partner. It is all about offering clients a ‘cradle-to-grave’ full service: we can now help our clients raise the capital, invest it, realise it and then wind down the fund. Weil also provides employment, tax, litigation, finance and restructuring advice, and anything else that our clients need throughout the duration of their funds,” he says.
It is an offering that is compelling to many clients, and that private equity focus distinguishes the approach of many American law firms in London from the full-service operations of the large Magic Circle English law firms.
It is extremely rare to see such fluidity of top-end talent in what is essentially a specialist sector of the legal market in the UK. But fundraisings are seen as the most important instructions to come out of private equity funds, because they are so critical to the success of the business.
Should the many new entrants to the market manage to impress, they will hope to get transactional mandates on the back of their efforts on fundraising. But the established European players will continue to provide very stiff competition.