United States > Investment fund formation and management > Overview
In the private equity world, 2010 kicked off in much the same fashion that 2009 ended, with an escalating downward trend in new fund launches and capital raising leading to a further 16% drop in fundraising in 2010 as compared to 2009. Banks remained reticent to release leverage to funds, once again making buyout funds a difficult proposition to sell at the highest level, although mid-market funds have proved more resilient. Funds under $1bn were more successful in capturing limited partners’ (LP) interest and amounted to over half of total buyout fundraising. In addition to the stagnation of the mega buyout funds sector in the US, venture capital (VC) fundraising hit a seven-year low in 2010. As a result, firms continued to look outside the US, chasing activity and interest in funds targeting emerging markets such as China and Brazil. Distressed debt and mezzanine funds were also bright spots in an otherwise gloomy outlook, with both types of funds attracting investor interest, while the secondaries market also experienced a slight upturn.
Owing to the prevailing market conditions, restructuring remained an important source of work for law firms. As part of this, with LPs generally in a much stronger bargaining position than at the apex of the private equity boom, many general partner (GP) sponsors have been forced to renegotiate the terms of funds with an eye to the Institutional Limited Partners Association’s private equity principles. Despite that, fund managers with a proven track record remain able to attract a surplus of investors and therefore dictate terms. Regulatory changes affecting the whole of the funds industry have been on the minds of LPs and GPs alike and with these changes set to come fully into force in 2011, firms have been called on to interpret and advise on the consequences for their clients. The final stages of 2010 saw a modest increase in fund-raising activity, leaving some cautiously optimistic.
The private equity rankings in this chapter reflect the strength of a firm’s ability to advise on fund formation and investment management matters, encompassing private equity, venture capital and real estate private equity funds. Firms that display balanced GP and LP-side experience are noted, although sponsor-side activity is accorded greater emphasis. Fund values and volume are taken into consideration, but more weight is placed on those practices that exhibit the capability to handle high-value, complex mandates; and niche capabilities are highlighted where relevant.
Following the re-equitization trend in 2009, 2010 was a more subdued affair for REITs. Follow-on offerings and IPOs have remained more common than in other investment management sectors and the market continues to significantly outperform the broader equity market, but the emphasis for law firms was on consolidation and retrenchment of REITs in general. REITs focusing on specific asset classes have proven to be the most popular, with healthcare a particular highlight. Publicly listed, non-traded REITs continue to be an area of both interest and concern to many, with the sector’s detractors questioning the opaque nature of these vehicles. Firms that are listed in our rankings are those with the ability to provide advice to both issuers and underwriters on the full gamut of representation, from capital markets and transactional work to tax, structuring and regulatory advice.
New mutual and registered funds product development has been slow but, spurred on by the continuing hybridization of alternative and registered products, continues to move forward. Exchange-traded funds (ETFs) remain popular, while the use of registered funds-of- funds continues to grow. As such, there is increasingly a need for firms to present diverse and versatile practices that can work across all fund products and deal with convergent structures. Regulatory reform in the registered funds space has seen a demand for attorneys able to clarify the role and responsibilities of independent directors. Firms are called on to handle buy-side matters for funds and investment advisers and sell-side work for banks and brokers. The leading practices typically are balanced, although the more complex and specialist work tends to emanate from the buy side. Strong regulatory expertise is highly prized, with the ability to deal with the SEC and advise on the regulatory pillars of the Investment Company Act 1940 (the 1940 or ’40 Act) and the Investment Advisers Act of 1940 being essential.
The Dodd-Frank Act’s impact on the hedge fund industry and, more specifically, the requirement for hedge fund managers managing assets of at least $100m to register with the SEC by July 21, 2011, has effectively brought many smaller hedge funds under SEC scrutiny. Where private equity funds have been steadily moving to register, hedge funds have been less speedy. Restructuring has remained a key part of practices, as has spinout work for investment banks following the Volcker Rule’s prohibition of proprietary trading and restrictions on banking entities’ ability to sponsor and invest in hedge funds and private equity vehicles. Practices identified in these rankings are those that have the capability to advise funds and managers on fund formation, restructuring and regulatory obligations. Work for hedge fund managers is given more emphasis, although those firms that have significant investor-side practices are duly noted. As with all the tables, top-quality advice on high-end funds has been given greatest weight, although volume work done well is also taken into account.