KKR’s European GC talks about building a local team for a diversifying finance giant.
One of the most common criticisms levied at general counsel (GCs) is their inability to share best practice, as well as their supposed lack of knowledge of the challenges facing peers. However, for Susanna Berger, Kohlberg Kravis Roberts & Co (KKR)’s GC for Europe, networking with peers is one of the best parts of the job.
‘Once we have made an acquisition, there is always co-ordination with the GCs of the portfolio companies – trying to educate them on what we expect as a fiduciary investor, what processes we would require them to have on behalf of our investors, what type of internal controls and so on. We have a strong network of GCs. We regularly meet up; I sometimes go and visit them at their companies. It is always interesting to see what kind of challenges they face – many are similar, others are entirely different. There are always things we can learn from them.’
Berger joined KKR, the most iconic name in the US private equity industry, in 2009, following stints at Simpson Thacher & Bartlett in London and Gibson, Dunn & Crutcher in New York, as well as some time spent working in-house at another global investment house, Avenue Capital Group. During her time at Simpson Thacher, she became experienced in a broad range of sponsor-side PE work, as well as gaining experience in capital markets and high-yield bond financing. KKR was a client, but it wasn’t until Berger returned from New York that she was headhunted to become its first European GC and build the London office’s legal and compliance function from scratch.
‘When I joined, the headcount was very different in London compared to what it is today,’ Berger recalls. ‘We were mainly doing large private equity deals, whereas now it is a much broader team and a much more diversified business. Prior to my arrival, the company worked with an outside compliance consultant and there wasn’t that much legal work going on. The deals were covered by the M&A advisers.’
KKR’s European legal team now consists of two lawyers, including Berger, plus support from secondees – relatively tight for a global business that as of July 2015 listed assets under management of $101.6bn. In-house PE teams are typically compact and very lean. However, the need for a legal and compliance function at KKR was driven by the firm going public through a merger with its listed Amsterdam fund, KKR Private Equity Investors (KPE), in 2009.
At a glance – Susanna Berger
Career
2000 Associate, Simpson Thacher & Bartlett
2006 European corporate counsel, Avenue Capital Group
2008 Associate, Gibson, Dunn & Crutcher
2009 European general counsel, Kohlberg Kravis Roberts & Co
Kohlberg Kravis Roberts & Co – key facts
Size of team Two lawyers (plus compliance and secondees)
Law firms used Clifford Chance; CMS Cameron McKenna; Dentons; Freshfields Bruckhaus Deringer; Simpson Thacher & Bartlett
Berger now reports to KKR’s global GC, David Sorkin, along with the other regional GCs for Asia and the Americas. ‘We don’t have a formal legal board, but we clearly talk a lot and meet up as well. There is a lot of interaction and we have a good awareness of what people in the legal team are doing,’ she comments.
Berger, who worked alone in-house for the first few years of her time at KKR, formally handed over the compliance function to KKR’s chief compliance officer for EMEA, Mark Howard, in 2011. However, there is still a close working relationship between the two functions. ‘Most people work in compliance and a few people cover both legal and compliance, so there is daily interaction,’ she says.
On the legal side, Berger’s role is now broadly divided between deal work and internal corporate governance. The range of work has evolved in recent years as KKR, along with many peers at the top of the global private equity market, has evolved from deal machine into multi-product line financial services group. KKR splits into private investment, which covers multiple asset classes, including PE, energy, infrastructure, real estate, capital markets, credit strategies and hedge funds; and the public investment side, including mezzanine financing, special situations and loan origination. The public side of the company is based in San Francisco and its legal team falls under the remit of GC Nicole Macarchuk.
‘On the private side, my role would be to oversee the selection of outside counsel, to educate outside counsel on key institutional requirements, to ensure they are all addressed and that there is consistency in terms of the deal documentation, the deal structuring and so on,’ says Berger. ‘My role is not that of a deal execution lawyer, so I wouldn’t sit with the deal lawyers as they go through the documents. The other workstream I am currently focused on is our European fundraising efforts due to the implementation of the Alternative Investment Fund Managers Directive, which has got a lot of attention in our industry.’
And with such a small team handling multiple deals, unsurprisingly there is a heavy reliance on external counsel. Berger does not have a formal panel arrangement as she prefers the flexibility that a list of preferred firms brings. Often, those on the preferred list would also take the role of co-ordinating counsel on a particular deal (in the US, Simpson Thacher is regarded as KKR’s go-to counsel).
‘There are certain firms that are clearly most aware of the institutional requirements for private equity investors like us. I would say we try to get the most experienced lawyers for each particular situation,’ comments Berger. ‘If a deal team came up to me and said “we are trying to pick counsel for a very specialised type of transaction and here is who we have heard are the best people in this space”, there is nothing that would bar them from picking those people. We have done a lot of work with the likes of Clifford Chance, Freshfields Bruckhaus Deringer and Simpson Thacher. We have done other recent deals where we have worked with Dentons or CMS Cameron McKenna. It is really situation-specific, and based on industry and jurisdictional expertise, and we are not limited to choosing from a specific list of firms.’
Yet PE is an area where relationships with external counsel matter more than most, with some lateral hiring at firms driven by those partners who can prove client loyalty. This can be big business for law firms but disruptive for sponsor clients. For Berger, the much-touted cult-of-the-individual theory about choosing PE lawyers is overblown – one partner leaving a large firm is unlikely to end the relationship.
She continues: ’Some individuals are clearly people who we have worked with closely and who would know the market and our institutional requirements extremely well – but it really depends on the backbone of the relevant law firm and what’s left. I would not say just because one person moves that is going to be the end of the relationship – clearly it wouldn’t be. You can see it having more of a potential impact if that particular person had a very specialised set of knowledge about a particular subset of an industry or jurisdiction that we might want to invest in.’
When it comes to external counsel, the most important factor for Berger is something every GC can relate to: getting the best deal for the company. As such, the in-house team operates on a mix of fixed fees and hourly rates.
‘Our fiduciary duties are paramount, so there is always an emphasis on getting the best deal for our investors. We do focus on fees and negotiate, but other than that, what I look out for is really good commercial awareness on the part of our advisers. We are not looking for people who just throw everything at you and come up with huge due diligence reports that don’t necessarily tell you anything. We are looking for people who can marry up what we are trying to do commercially and can advise us on the key issues we need to worry about. Those are really going to be the ones driving the business forward.’
Another key requirement for any would-be adviser is a willingness to collaborate with other law firms. With multiple firms working on any one deal, there is rarely a sole appointment or mandate from this particular GC.
‘We typically use more than one law firm on a deal. The law firms need to be willing to collaborate effectively. The last thing we want is for something to get missed because there are too many cooks in the kitchen. That is also why we typically appoint somebody who will take on the overall transaction co-ordination – to drive consistency, and ensure efforts are not duplicated and legal issues are not missed,’ says Berger.
While the challenges of the role centre around the cross-border complexity of many of the deals, as well as raising finance in a fast-paced environment, Berger relishes the sharing of knowledge among legal teams at target companies or even rival PE houses and enjoys getting involved in the networking element – not something often associated with the competitive buyout business.
‘As shareholders, we are not getting involved in the day-to-day operations of the business, but sometimes someone in the company might call us up and ask for our recommendations for legal or compliance candidates. It happens in particular in compliance, where portfolio companies are often interested in hearing our views. It is informal – a network where you have people to talk to and you can pick people’s brains that you wouldn’t have the opportunity to otherwise.
‘That is the whole appeal of private equity – you have a lot of people who do a lot of different things and you can connect with them and share ideas.’
kathryn.mccann@legalease.co.uk