Considering working on a more flexible basis of engagement?
Why not start your own business? One high-flying
GC-turned-entrepreneur takes to the skies on a
venture that redefines the limits of
By Chris Jones.
Ten months ago Tim Slotover became the master of his own destiny, creating his own legal services business in the Hedge Fund space. flexGC promises bespoke in-house general counsel services to asset, hedge fund and investment managers on a flexible, as-needed basis. Sound familiar? How does this model differ from Axiom or Halebury? And how can one man possibly provide effective GC services to several clients at once?
IT’S ALL ABOUT BALANCE
GC: Can you tell me a little about yourself and your decision to move in-house?
Tim Slotover (TS): I’ve been in-house since 2005, when I left Clifford Chance to join the alternative investments business of a bank. Coming from a role in private practice, where my clients were typically other in-house lawyers, my own move in-house provided a refreshing introduction to law in a commercial and practical context. At the investment bank, my office was right next to the managing director of the group and he would come in and say: ‘this is what I’d like to do, what do you think, what are the legal issues?’
In the financial services industry everything is increasingly impacted by law and regulation, making the legal function a core part of the business. Delivering commercially-focused legal advice is critical. That commercial focus solidified my desire to continue as an in-house lawyer rather than in private practice where lawyers are one-step removed from the commercial action. Actually being there, considering all the factors and giving advice in day-to-day practical situations... it’s terribly exciting to be at the centre of things.
I had a great time at the investment bank. When the credit crunch hit, the structured products we managed underwent stress but we brought them in to a relatively soft landing, with the in-house legal team playing a crucial part in that process. We then evolved into a hedge fund group and I evolved into a hedge funds lawyer. The bank slowly started spinning off its asset management businesses and so, with a bit of time in between helping to set up a managed account platform, I joined a US-headquartered structured credit investment manager as its London general counsel.
GC: What was the inspiration behind setting up your own business, and how did you go about doing it?
TS: I felt there was an opportunity to provide clients with an important service and at the same time to put a slightly different spin on my personal expertise as a hedge fund GC.
Hedge fund managers function in an incredibly regulated environment and internal legal resource is a necessity. It’s dangerous for fund managers to operate in this industry without someone on their team to proactively look over their shoulder and keep them on the right side of all the laws and regulations affecting their business. In this environment my belief is that having someone integrated into the business, watching over matters of law and regulation, is absolutely critical.
Some people will try to fill this need through close relationships with outside counsel, but there is an important distinction to bear in mind here: outside counsel are, for the most part, reactive: they take an instruction, they deal with it, they give a piece of advice and then they go away again and wait for the next instruction. As in-house counsel, we’re a member of the team, we’re part of the group and we’re within the flow of information; making us able to be proactive as well as reactive. Of course we deal with matters as they come up but what really sets us apart is the ability to marry our knowledge and intimacy of the business with our familiarity of the legal and regulatory environment in which the business operates, enabling us to help steer the business in the right direction. If pressure is put on one area of the business, perhaps through a contractual term or new regulation, we know the effect it will have throughout the rest of the business. We can spot things coming up that might be impacted by new law and regulation and deal with those things before they get in the way of business or before the business puts its foot wrong and breaks the law. Proactivity is what really differentiates in-house and external counsel, to my mind.
During my time as a full-time, employed general counsel, there were times when I was less busy than I could have been, purely due to the needs and activity of the business. I would sometimes wonder whether I was properly earning my keep. It’s clear that fund managers benefit tremendously from having a general counsel on staff, but can everyone justify someone full time? We’re highly qualified and add tremendous value, but that doesn’t come cheap, especially for someone with experience. And then I thought, could I offer a service that gives clients this benefit without the burden of having a full-time GC? That led me to create flexGC, a service offering in-house legal expertise to asset managers, providing all the benefits of a general counsel but on a flexible, as-needed basis.
I mentioned the concept to my employer and explained how I thought I could continue to provide the same service and coverage I had previously provided to them but on a more flexible basis of engagement. The suggestion was received well, perhaps partly due to a desire to maintain the continuity of the person providing the function, but I’d like to think also because it made good commercial sense. They were very supportive of me in setting up flexGC and I formally transitioned to being their outsourced GC last September.
GC: To what extent do you think you can be proactive to your potential clients when it would seem that they would probably approach you as they approach law firms - in a reactive sense?
TS: That’s the key issue, and it’s managed by how I run client engagements.
Proactivity is what makes an in-house lawyer stand apart from an external lawyer and the ability to be proactive depends on how integrated and familiar the individual lawyer is with the client and its business, ongoing. Normally an in-house counsel is a full-time employee who’s there day in, day out, making integration and familiarity a given. I’m seeking to achieve a similar degree of integration through flexGC’s flexible in-house service.
When I establish and develop a new client relationship, there is a period of getting to know the client where I will dive very deeply into the client’s business, documents, products and operations and also get to know the people. I spend a lot of time immersing myself in the company and its operations.
‘Ultimately it comes down to the question of “what is a GC?”’
In order to keep myself integrated and familiar with the business I have an ongoing retainer with each client, typically structured as a fixed amount of time per month, ranging from just a handful of hours to several dozen depending on the client’s size, complexity and needs. This ongoing retainer, and the regular interaction it fosters, keeps me in the flow of information so I can know what’s going on and what’s changing. If there is a project going on requiring more of my time in a particular month, I can make additional time available to accommodate the client’s needs. Unlike external counsel, I prefer to work on-site with the client, ideally having a desk in their office and using their systems. This makes me part of the team and helps me to stay on top of what is going on.
There has to be an on-going element to any engagement. I’ve actually refused work where it’s been clear to me that clients are looking for a single piece of advice rather than something that is in the context of a wider in-house counsel relationship. People have asked me whether I can do an isolated investment management or distribution agreement and I’ve declined to do so, instead recommending that one of the more traditional law firms be consulted.
I’m very clear with my clients that I don’t replace their external counsel, rather, I complement them. I work with outside counsel where we need particularly technical advice or cross-border advice that an in-house GC just isn’t qualified or resourced to provide, but I will ensure that clear and concise instructions are given and manage those relationships, as well as the integration of the ensuing advice, much more effectively than if no GC was in the picture.
GC: Is this because you are looking for longer-term clients?
TS: Yes, I’m looking for ultra-long-term clients. My role, expertise and service is as in-house counsel and I don’t want to compete with the outside firms who offer ad hoc, reactive and transactional advice.
GC: How do your service differ from the likes of Halebury, Axiom, and Lawyers on Demand?
TS: flexGC is quite different. Those companies will second lawyers to their clients full-time for six or twelve months to cover maternity or significant projects. I don’t do that. My focus is on providing a permanent in-house solution but on a flexible basis of engagement. If a potential client needs someone full-time, they should hire a full-time lawyer, but if it’s something that can done on a flexible basis that’s where I come in.
Ultimately it comes down to the question of ‘what is a GC?’ It doesn’t do a business any good to change their general counsel every six months to a year. One of the key benefits is the integration and intimacy that the GC has with the business; knowing where the pressure points are, where the levers are, taking two ostensibly identical businesses and knowing how the same situation would need to be handled differently for one versus the other. A lot of the relevant information lives within the head of the individual GC and is based on the relationship the individual has with his or her business counterparts. To be a properly effective general counsel, one needs to have a very deeply ingrained relationship with senior management which is difficult to build over the short term.
GC: Is flexGC just yourself at the moment?
TS: flexGC at the moment is just me. The firm is authorised by the Solicitors Regulation Authority and my intention is that the client service model will comprise two lawyers for every engagement. There’ll be the primary GC, someone who can competently and confidently stand on their own two feet as the fund manager’s general counsel, integrate into their business and carry out the role ongoing, but who will have the benefit of a backup who, although perhaps is not as intimately familiar with the client, can step in from time to time as may be necessary. This is where I believe the flexGC model can add additional value. On top of being a very efficient way of having the benefit of a general counsel on staff, it also brings an additional resource that clients would otherwise not have with a single employee.
Being a GC can often mean working in quite a lonely, rarefied environment. Often you are the only one covering the legal and regulatory aspects of the business and although you have colleagues to talk to, there’s no one else from a legal perspective to bounce ideas off. So I think that extra resource and collegiate environment that I would like to build within flexGC will bring extra value to clients as well.
Having gained additional clients quite quickly, it became clear to me that I was approaching the limits of my own capacity and I needed to start finding others to come on board – one assurance I give to clients is that I will not take on so much work that I am not reasonably available to them. I’ve been working with head-hunters and identified some tremendously qualified and competent people who are interested in joining and now it’s just a matter of matching the role to the individual. This is what I see as the evolution of the company - as soon as someone else comes in I can roll out my ultimate intention for the client service model.
GC: What’s your long-term goal for the business?
TS: London is possibly the premier location in the world for hedge fund and asset management business, so it’s probably the best place to be doing this sort of thing. Although my personal expertise is in hedge funds, the concept behind flexGC isn’t necessarily limited to hedge funds nor is it limited to London either. As a concept, others could do it and there are competitive businesses out there, like Halebury, who are doing it in different industries already.
I’d like to see flexGC grow steadily by taking on more clients and staff, building a brand and a collegiate environment among those providing the service. One of the things I’m considering is potentially entering into a joint venture with a complementary law firm with a reputable investment management practice. The way that law firms deliver legal services and business at the moment, they either provide purely reactive advice or they put their staff in as secondees. They don’t have anything of the sort of relationship that I’m offering and I think there could be a tremendous synergy between flexGC and a law firm, where the kinds of clients that will come out of a law firm once they’ve started up will be natural clients for flexGC who need something ongoing internally to manage and grow with the client. This will also foster the relationship with the bigger law firm and the practice that they have as well. It’s not necessarily the way it will go but it could be a very interesting way of evolving the business.
‘We’re a lot like your GP.’
GC: Who is your target market?
TS: My ideal client, if there is such a thing, is someone who is already up and running with some existing business flow in managing fund products, but who doesn’t have in-house legal support and needs someone to come in and start growing into that role. It may also be that they have a very junior lawyer on board full time who needs someone more senior and experienced to come in sometimes and oversee their day-to-day work. That’s certainly something that I’d be delighted to do and have experience doing with others.
There’s also quite a big market for foreign fund managers – Asian or US managers who have bigger teams or infrastructure in Hong Kong or in the United States, and who open a London office and want someone covering that office from a legal and regulatory perspective, but again couldn’t necessarily justify someone coming in full time. So I can come in and do that and integrate into their wider foreign legal function. Having worked for foreign headquartered firms, I am familiar with the differences in terminology that can sometimes cause confusion.
GC: If I am just looking for one piece of reactive advice every two years, why choose you when your retainer could escalate to the same cost as a law firm and you may need to consult external counsel anyway?
TS: Any business operating under the sort of legal and regulatory intensity which fund managers are subject to will have someone internal focused on such matters, whether that person is a lawyer or not.
It’s my belief that an experienced in-house lawyer is best placed to do this properly and, to your question, the first thought that comes to mind for any fund manager requiring legal advice just once every two years in this day and age is that they might not properly appreciate the legal and regulatory environment in which they operate.
Sometimes people think they can do it themselves, without a lawyer, and maybe they can. But what they get from flexGC is proactive oversight of the legal and regulatory aspects of their business in a very efficient way and from someone with real experience.
There are certainly people out there who operate blindly and I think that is quite dangerous for them and their investors. Certainly, investors nowadays are looking to make sure that fund management businesses are run properly and having a general counsel ‘on staff’ is, in my view, a statement that the business takes its operations seriously and gives the appearance of an institutionally-focused business. I’m certainly not saying that it’s impossible to manage a fund business without internal legal resource but what I can do is allow people to focus their time on other aspects of the business where it may be better spent, while I take this burden from them.
By only limiting yourself to external counsel and not having someone on the inside, someone that is not integrated into the flow of information to see what happens day to day, you miss out on someone who will put their hand up and say ‘hang on, you’re doing this, but this is regulated and it must be done this way’; you run a tremendous risk of being tripped up on some regulatory issue.
‘To be effective you need to be core to the strategic business decisions.’
GC: A lot of the feedback in the industry focuses on the dreaded hourly rate, so how does your pricing model work?
TS: My engagements usually comprise a fixed retainer, giving a specified number of hours per month, and additional time that can be made available if it is needed, which is charged as needed. This approach gives flexibility to clients and is very transparent.
I did an interesting exercise when developing flexGC as a concept: I calculate around 1,700 working hours per year. If a client considers the total fixed and variable remuneration it pays to an employee, as well as the cost of modest benefits and typical payroll taxes such as national insurance, and divides that big number by 1,700, they will have a guide as to what they pay that employee per hour, day in, day out, whether that employee is busy or not.
There’s a wide range for what hedge fund general counsels are paid. I’ve looked at all the salary surveys, some private, some public, some purely focused on London and I’ve picked a fairly middle of the road figure. flexGC’s reference rate is closely aligned with the hourly rate derived from this compensation figure and what I say to prospective clients is that if you have a full-time, experienced general counsel they’re going to command a salary and bonus of around this number. This is what you’ll be paying this person all the time, whether they’re busy or not, whereas I can offer you a flexible service in which you only pay for what you use. In the extreme case, if you do happen to use flexGC all day, every day, for the whole year, then you will be paying not far off what you might pay for a full-time employee.
GC: GCs often become strategists at the helm of business. By working on a flexible basis, are you limiting your potential to truly influence strategy?
TS: The flexible nature of my engagements hasn’t affected my involvement in strategic business decisions at all. These decisions are often deeply rooted in what you can and cannot do in law and regulation and being the person that knows the business, who is also familiar with the regulatory regime, I am central to those discussions. I have to wear my business hat as well as my legal hat when I’m thinking about what moves the business is making.
GC: How has flying aircraft prepared you for the entrepreneurial world?
TS: Flying has always been a big feature in my life, probably my biggest passion. I started flying aeroplanes at the age of 13 and got into helicopters shortly after I qualified as a lawyer. It gives you a tremendous freedom, a wonderful sensation of flight, and helps you to see the world and its opportunities slightly differently. Whether you’re travelling long distances or just flying in a big circle, the responsibility for planning and executing the flight safely and professionally is solely down to you. Not unlike being a lawyer, one never flies in a sterile vacuum – there are many variables, constantly changing, that require focus, consideration and flexibility to make sure you get where you want to go, ideally without too much excitement along the way.
I think the discipline that comes from flying is very helpful in managing legal issues and looking at things from a bigger perspective and then focusing in on the detail. It’s one of those things that becomes a part of your being and helps shape you as a person. To do something so very technical where you have to plan your way around things, be flexible in your approach and think things through from different angles, helps shape you and your professional life whether as a lawyer or otherwise. A lot of hedge fund managers are also into aviation and it makes for great networking.
GC: Any final words of wisdom…?
TS: Talking to prospective clients without internal counsel, there is often a process of education around the function. A helpful analogy in explaining what a general counsel is that we’re a lot like your GP.
Your primary port of call for anything medical is your GP. They see you more regularly than anyone else does from a medical perspective and get to know you through your records, how your weight or blood pressure goes up and down, etc., and they can spot the trends. Most things they can deal with themselves but as soon as something very technical comes up they may need to send you to a specialist, but they’ll write to the specialist, introduce you and integrate whatever work the specialist does back into your general medical requirements.
Similarly, a GC is the first port of call for anything legal and regulatory. Just like the GP, they know your business, they know you, and they become proactive when they see trends going in different directions or see things coming up and deal with those things. To the extent that any specialty is needed, such as cross-border advice or something particularly technical, this will go out to the specialists at external law firms and the GC will target the instruction to the appropriate firm and integrate their advice back into the day-to-day business.