When asked to describe his role at DLA Piper, Sandy Presant, co-chair of the firm’s national real estate fund practice, provides an unusual answer.
“I’m a fund obstetrician,” he says.
The metaphor may not be perfect, but Presant and his team spend much of their time advising private equity real estate firms on the formation and proper structures of new fund offerings.
Presant, based in Los Angeles, joined the law firm last year. Previously, he had been the national director for real estate fund services at Ernst & Young, where his clients included over twenty of the leading private equity fund sponsors. Presant says he left the consulting firm because he wanted to get back to the law—before joining E&Y in 2000 he had been a lawyer at Washington, DC-based firm Kaye Scholer—and work more closely with funds on best practices, his specialty.
“Best practices are very important these days,” says Presant. “The real issue is how efficient you are inside [your firm] protecting risk.”
Presant notes that best practices can be applied to all categories of the limited partnership structure: at the fund level, at the joint venture level and within the GP entity itself. A lot of work has been done on the first two issues, but it is the last area, the structure of the general partner, that is finally starting to draw attention.
“[Firms] usually dust off the same GP agreement that they’ve had for 10 years,” Presant says.
According to Presant, the old structures lack a number of provisions that are becoming increasingly important as firms splinter and individual members of the GP start their own firms. Some of those provisions include: escrow and vesting arrangements within the GP, non-compete agreements and restrictions that prevent partners from taking deals to their new shop even if they were rejected at the previous firm—what Presant refers to as “the young Turk problem.”
Another level of protection that Presant recommends is insulating the GP entity and its investors from any potential conflicts that break out between the individual partners of the firm. This is typically accomplished, he notes, by creating a separate entity for the individual partners that is a level removed from the GP entity itself.
As the fundraising market becomes increasingly active, issues like these are becoming more and more important, which means that Presant and his team will not be lacking for patients.