With a flurry of US firms luring funds partners from UK rivals, LB finds out why lawyers in this area are hot property.
Periodically the City goes through a feeding frenzy of lateral hires. In the past, firms have gobbled up partners in structured finance, restructuring and litigation. The current plat du jour though, is funds.
Be they real estate, private equity, hedge, investment or otherwise, firms have recognised the importance of being able to offer the whole funds piece from cradle to grave, with the US firms making hay mostly at the expense of the leading UK firms.
Since February 2011 there have been 22 City partner hires in the funds space (see table, ‘Lateral funds partner moves in 2011/12’, below). Of that group 14 left UK firms to join US firms, while three went from one US firm to another. It is difficult to pinpoint a similar rate of movement in one area at any time in recent City history. To see talent seep to the US firms at such a fast pace must be gut-wrenching for the established leaders in the UK market, in particular the likes of SJ Berwin and Clifford Chance (CC).
‘US firms have really picked up on fund formation work. Part of that is a natural extension of the client base.’ – Maurice Allen, Ropes & Gray
In a world where English law has become the dominant force, funds work bucks the trend because much of it falls under US regulations – the recent flurry of investment shows that deep relationships in the US are absolutely crucial to running a successful global funds practice.
However, the activity of the global and European big players has been in decline since 2007. Global fundraising peaked that year when €485.7bn was raised by private equity houses, according to data provider Preqin. That fell to €201.8bn in 2011.
European activity has dropped from €110.2bn in 2006 to €42bn in 2010. There was a slight pick up in 2011 after €44bn in funds were raised. Most of the major private equity players have raised or are expected to raise significant amounts in the next six months but beyond that it is difficult to predict.
| Name | To | From | Date | |
|---|---|---|---|---|
| William Yonge | Morgan, Lewis & Bockius | Proskauer Rose | March 2012 | |
| Matthew Judd | Ropes & Gray | White & Case | February 2012 | |
| Tim Pearce | Akin Gump Strauss Hauer & Feld | Simmons & Simmons | February 2012 | |
| Ian Meade | Akin Gump Strauss Hauer & Feld | Simmons & Simmons |
|
|
| Noel Ainsworth | Morgan, Lewis & Bockius | Simmons & Simmons | January 2012 | |
| Jim Baird | SNR Denton | Dechert | December 2011 | |
| David Evans | Goodwin Procter | Ashurst | November 2011 | |
| Samantha Lake Coghlan | Goodwin Procter | Ashurst | November 2011 | |
| Gerard Saviola | Clifford Chance | Debevoise & Plimpton | October 2011 | |
| Stephen Sims | Skadden, Arps, Slate, Meagher & Flom | Macfarlanes | September 2011 | |
| James Tinworth | Stephenson Harwood | Simmons & Simmons | August 2011 | |
| Kate Simpson | Proskauer Rose | Kirkland & Ellis | July 2011 | |
| Nigel van Zyl | Proskauer Rose | SJ Berwin | July 2011 | |
| Oliver Rochman | Proskauer Rose | SJ Berwin | July 2011 | |
| Nick Terras | Brown Rudnick | Ashurst | June 2011 | |
| Tim Simmonds | Osborne Clarke (Bristol) | Berwin Leighton Paisner | June 2011 | |
| Peter McGowan | Proskauer Rose | Berwin Leighton Paisner | June 2011 | |
| Ed Gander | Weil, Gotshal & Manges | Clifford Chance | June 2011 | |
| Nigel Clark | Weil, Gotshal & Manges | Clifford Chance | June 2011 | |
| Nick Benson | Weil, Gotshal & Manges | Clifford Chance | June 2011 | |
| Gray Smith | Mishcon de Reya | Appleby | May 2011 | |
| Daniel Greenaway | Pinsent Masons | SJ Berwin | March 2011 |
Looking back
US firms making a move into the funds space is by no means news. Since around 2003, there have been various interesting plays, particularly as the funds market started to globalise.
John Daghlian’s move to O’Melveny & Myers from SJ Berwin in 2004 has seen him carve out a successful mid-market niche acting for the secondary market as well as being a key adviser to firms such as Coller Capital.
Daghlian explains that, pre-2003, the vast majority of funds were private equity and venture capital with a few infrastructure and fund of funds but not much beyond that.
That began to change as funds moved to grow from their domestic markets and expand globally. There was an increase in the number of distressed and illiquid funds. ‘The volume, variety and size of funds changed. The whole market got bigger as it matured,’ he says.
Although O’Melveny’s progress was eye-catching, the firm never really capitalised on its initial manoeuvrings as the team has remained roughly the same size. It wasn’t until the triple partner move of Mark Mifsud, Richard Watkins and Justin Dolling from SJ Berwin to Kirkland & Ellis in 2007 that the closely knit funds world sat up and took notice.
‘It has become much more important to have the full range of services globally in your private equity offering than ever before.’ – Mike Francies, Weil, Gotshal & Manges
In fairly short shrift the trio began to see work from SJ Berwin clients Candover, Apax Partners, Mid Europa Partners and Vision Capital. Allied to this was Kirkland’s enviable stock of clients, including Bain Capital, and there was genuine momentum in the US firm’s City funds practice. More recently the team has advised Lion Capital and AMP Capital. The proposition of a platform with deep US relationships was clearly becoming a compelling one. Watkins suggests that when he was at SJ Berwin, around 80% of funds work was outsourced to US firms.
Watkins explains: ‘The ability to do the whole funds piece under one roof is the big attraction of a US firm. People who are currently raising funds are having to look further afield for capital – to be able to offer insights on investor developments globally is a real advantage.’
The success of the team at Kirkland still did not precipitate a call to arms by US firms. This was largely because a number of US firms had failed to crystallise their London and European strategies, while SJ Berwin and CC had enough business to hold on to their leading lawyers.
However, if there was one move that really started the rush it was that of Jason Glover, who left CC to join Simpson Thacher & Bartlett in mid-2010 (although he didn’t start at the firm until the beginning of 2011).
He embodied the quality that CC had spent so long building up and had been the target of multiple approaches by rival firms over a number of years. Since his move he has advised, alongside CC, on the largest post-Lehman fundraising by acting in 2011 for BC Partners on its €4bn fundraising. Glover has also scored roles on subsequent multibillion-euro fundraisings for Apax and EQT Funds Management. As one City funds partner says: ‘His move must have caused people to think that “if he can do it, then so can I”.’
Why now?
There are three clear reasons to explain the recent movement of funds partners in the market. The first two are intertwined and the most crucial, while the third is perhaps a little more cynical.
The regulators have come down particularly hard on the global funds community of late. The regulatory burden that funds now have to bear globally is a huge strain on business, with a large chunk of it driven out of the US. In Europe there have been similar swinging changes to the regulatory landscape.
This has polarised the funds community between the large, truly global players and the smaller domestic ones. If a law firm targeting the top end of the market does not have quality people in Asia, Europe and the US, then it is at a distinct disadvantage.
Up and coming star Nigel van Zyl, a private equity fund formation expert who moved from SJ Berwin to Proskauer Rose along with Oliver Rochman in July 2011, says: ‘With regulatory and tax being more global and far reaching, the firms that do not have that are at a disadvantage.’
Proskauer Rose has long been in the market for a London funds team and, after a couple of false starts, has followed up with some interesting hires, including the 2009 recruitment of Travers Smith’s investment funds chief Bob Barry. With the highly rated van Zyl now in place, the team at this New York-based firm has recently won solid mid-market mandates for HgCapital and Adams Street Partners.
‘Always follow the money and the reality is a lot of the money flows are US focused.’ – David Evans, Goodwin Procter
‘Portable business is much easier than other areas of practice. The number of relationships is far fewer, and they are highly personal relationships that are built up over many years. So they are more likely candidates for movement,’ says former Proskauer chair Allen Fagin.
Weil, Gotshal & Manges London office head Mike Francies goes on: ‘It has become much more important to have the full range of services globally in your private equity offering now than ever before. It is harder to do deals without knowing how they are structured and regulated and US firms certainly have the advantage.’
Francies and his team sealed the landmark hires of three funds partners from CC last year as well as a tax partner. This led to an acrimonious fall out between the two firms with a fair amount of sabre rattling.
Ultimately Ed Gander, Nigel Clark and Nick Benson joined the US firm in June 2011, which now boasts a well-rounded offering on the private equity side in the City. The team recently acted for BC Partners in a E6.5bn fundraising and has been instructed on a fundraising for 8 Miles, the Africa-focused private equity house led by Bob Geldof.
Linked to this is the fact that the largest global funds invariably have US origins, meaning that investor cash is predominantly American. David Evans, who moved from Ashurst to head up Goodwin Procter’s nascent UK practice in 2011 and specialises in real estate funds, adds: ‘Always follow the money and the reality is a lot of the money flows are US focused.’
‘They obviously dominate the market and as the houses have become more global with their funds the US firms have followed them and have picked up work. It is still very much a relationship-driven business,’ reckons David Billings, head of Akin Gump Strauss Hauer & Feld’s London investment funds group.
Akin Gump has had an investment funds team in the City for a decade with its primary focus on hedge funds. The firm recently hired Tim Pearce and Ian Meade from Simmons & Simmons to build a respectable-looking five-partner City funds team.
One of the more recent eye-catching moves in London was that of Matthew Judd from White & Case to Ropes & Gray. Judd, a former CC partner, has held relationships with Société Générale and ABN AMRO.
‘US firms have really picked up on fund formation work. Part of that is a natural extension of the client base,’ says Maurice Allen, who co-heads Ropes’ City office. ‘But UK firms have not really gone into the US in the same way, they are not truly global.
‘There are still some standout practices at the UK firms, SJ Berwin and Macfarlanes, for example, but others, such as CC, have suffered something of a blow in the recent hiring spree.’
The last reason for so much movement is that funds lawyers can name their price because this small talent pool is in such high demand.
Evans suggests: ‘They recognise they are a small, in demand and liquid group of individuals and they realise that they are at the top of a sellers’ market and they want to cash their chips in.’
However not everyone agrees. James O’Brien, head of private practice at LPA Legal Recruitment, suggests that the moves have been client driven. ‘I don’t think those partners are necessarily being lured by pay packets, rather they are likely going over because it makes sense to be with a firm that represents their clients in the US also,’ he says.
The reality is somewhere in between the two. Clients will play a part but a US firm’s ability to put a couple of extra noughts onto a package to lure the right team is well known.
Sustained push
US firms are seeing a perfect storm in terms of clients and talent at the moment. However, it would be churlish to think the UK firms are sitting back and taking a hiding. Those worst hit by the hiring are rightly defiant.
CC is a global practice with a large funds team and has held onto its key relationships despite the bulk of its London team leaving. Of the largest European fundraisings, the firm has been there in one form or another, including advising on Apax’s E9bn fundraising in August 2011. It also recently hired counsel Gerard Saviola from Debevoise & Plimpton as a partner.
Meanwhile, SJ Berwin is, by some measure, still the number one firm for European funds work. According to Preqin, the firm has closed 13 funds in the last 12 months with a total value of $6.7bn. In fact out of the top five law firms to advise on all European fundraisings in the last 12 months, three have been UK-based practices, with SJ Berwin, CC and Macfarlanes all featuring. Proskauer Rose and O’Melveny were also listed.
Did your firm expand into any new practice areas in 2011?
| Yes: | 13 firms | |
| Banking and finance | 2 | Edwards Wildman Palmer; Paul Hastings |
| Competition | 1 | King & Spalding |
| Construction and engineering | 1 | Dorsey & Whitney |
| Energy | 1 | Cadwalader, Wickersham & Taft |
| Disputes | 2 | King & Spalding; McGuireWoods |
| Financial services regulatory | 1 | Orrick, Herrington & Sutcliffe |
| Insolvency and restructuring | 2 | Edwards Wildman Palmer; Shearman & Sterling |
| Investment management | 1 | Skadden, Arps, Slate, Meagher & Flom |
| IT and telecoms | 2 | Edwards Wildman Palmer; Gibson, Dunn & Crutcher |
| Private funds and private equity | 2 | Paul Hastings; Weil, Gotshal & Manges |
| Tax | 1 | Edwards Wildman Palmer |
| White collar | 3 | Arnold & Porter; McGuireWoods; Sullivan & Cromwell |
| No: | 37 firms |
SJ Berwin’s formidable reputation continues. The firm argues that having more players in the City has only consolidated its position at the top of the market. This latest hiring spree has spread the talent out, which will inevitably make for a much more competitive environment. But as Weil’s Francies points out: ‘That is no bad thing. It keeps us on our toes.’
The greatest change of the past five years is that CC and SJ Berwin are not perhaps as dominant as they used to be, but that doesn’t mean they are impotent forces. They just have more company at the top of the market.
The headline-grabbing moves have almost certainly come to an end now and the US firms have to capitalise on investments. One concern is that US firms are all selling similar products, leaving UK firms the opportunity to differentiate. The battle for market share is now well and truly on and, with more players fighting for a piece of the global pie, things are just about to get interesting. LB