Who are asset managers and what legal services do they require?
Asset managers are firms of skilled financial professionals who invest capital on behalf of a wide variety of market participants, including pension funds, endowments, family offices and certain private individuals. They use sophisticated investment techniques and invest in a wide variety of asset classes. The asset management sector performs a crucial economic function by pooling capital so that it can be allocated efficiently, while also offering investors access to financial expertise and investment opportunities that might not otherwise be available to them.
Simmons & Simmons LLP offers a full suite of legal services to its asset management clients, including providing advice on fund formation, the creation of new share classes, corporate transactions and finance transactions, as well as specialist tax, litigation and employment advice. Simmons & Simmons also offers asset managers multi-jurisdictional contentious and non-contentious regulatory advice, which helps them to navigate the increasingly complex regulatory environment that has developed following the global financial crisis.
Hedge fund managers
Hedge fund managers have traditionally sought to generate absolute returns, which simply means that they aim to be profitable in both rising and falling markets. Hedge fu
nd managers use advanced risk management and investment techniques to generate these returns, although different funds adopt different trading strategies.
The fees hedge fund managers charge are often referred to as ‘two and 20’, or an annual management fee of 2% of assets under management (AUM) and a performance fee of 20% of any profits that are generated.
For regulatory and tax reasons, hedge funds are typically structured as ‘master-feeders’. This simply means that US investors will invest in a limited partnership ‘feeder fund’ and non-US investors will invest in an offshore corporate ‘feeder fund’. Both of these funds will then invest in a so-called ‘master fund’, which is itself usually an offshore company. It is the assets of the so-called ‘master fund’ that are then invested in stocks, bonds, derivatives or other assets.
Private equity fund managers
Broadly, the term ‘private equity’ refers to medium to long-term investments that are made in unlisted companies (or in publicly listed companies which are subsequently taken private). However, there are many different types of private equity investment manager, from venture capitalists who invest in early-stage companies with high-growth potential, to large private equity houses that provide equity financing for management buyouts (MBO), management buyins (MBI), ‘public-to-privates’ and other transactions.
Private equity funds are typically structured as limited partnerships. In the UK, a limited partnership structure is used instead of a traditional partnership because it allows the liability of the investors in the fund (ie the limited partners) to be limited to the amount they have committed to invest in the fund. In contrast, the liability of the general partner to the fund will be unlimited.
What are the key skills required?
Lawyers who know their clients’ businesses and understand their commercial motivations are more likely to be able to develop long-term, collaborative relationships with them, and this is certainly true of the firm’s asset management clients.
What does the day-to-day work involve?
The type of work that a lawyer in the asset management sector will be involved with varies significantly by practice area:
Financial services – funds
Specialist fund lawyers may help skilled traders or investment bankers launch a new hedge fund or private equity fund of their own, or they may assist an existing asset manager to launch a new fund or to create a new share class for an existing fund.
Financial services – non-contentious regulatory
Non-contentious regulatory lawyers help asset managers to comply with the increasingly onerous regulatory obligations that have been introduced following the global financial crisis. This may include advising on new pieces of regulation as they come into force, or it may involve helping a fund or manager to comply with existing rules to which they are subject.
Financial markets litigation – contentious regulatory
Contentious regulatory work for asset management clients often involves responding to requests for information from regulators, including the Financial Conduct Authority in the UK or the Securities and Exchange Commission in the US. Trainee work may involve detailed analysis of trading data or electronic communications (such as emails and Bloomberg chats) as well as interviewing traders, portfolio managers or investment analysts to understand why particular investment decisions were taken.
Simmons & Simmons’ corporate lawyers advise the firm’s asset management clients on all aspects of their corporate transactions, from large-scale acquisitions by private equity firms to hedge fund group restructurings. Trainees in the corporate department will be involved with a wide range of tasks, from helping to draft share purchase agreements and other agreements to assisting with verification, which is the process of ensuring that all of the statements made by a company in an offering document are accurate.
Our lawyers advise on all types of transactions undertaken by asset managers, including advising on investments made by private equity, infrastructure and real estate funds and the financing and exits undertaken in relation to these funds.
Tax lawyers work closely with funds lawyers and corporate lawyers, advising on all aspects of domestic and international tax, to ensure that deals undertaken by our asset management clients are structured in a tax-compliant and efficient manner. Trainees working in tax may be asked to research specific points of UK tax law or to manage the process of obtaining local tax advice.
What have been the key recent developments in the area in the past 12 months?
The key trend in the asset management sector in the last 12 months has undoubtedly been increasing levels of regulation. The asset management industry, which has traditionally been lightly regulated, has been subject to greater scrutiny following the global financial crisis and, as a result, asset managers are now facing much more onerous regulatory obligations. In addition, uncertainty about the future regulatory framework has been increased by the Brexit vote.
Simmons & Simmons
Simmons & Simmons is a leading international legal practice with over 1,500 staff worldwide, including over 250 partners, and a total legal staff of over 800. Our current client base includes a significant number of the current FTSE 100 and Fortune Global 500 companies, investment banks and many of the world’s largest financial conglomerates. We provide services from offices based in Europe, the Middle East and Asia. We view the world through the lens of our key sectors: asset management and investment funds, financial institutions and technology, media and telecommunications.
For further information about the firm, see www.simmons-simmons.com