Hot topics - blurring the lines, independent advice and downstream trends
Q&A with Joanne Huckle, Ogier
As someone who advises both hedge funds and private equity managers, are there common themes affecting both sets of clients?
The once-rigid boundaries between the hedge funds industry and the private equity industry are becoming blurred – we’re seeing traditional hedge fund managers increasing investments in private equity opportunities such as real estate and illiquid private debt, a marked growth in the number of new hybrid fund launches, and institutional investors and family offices alike are reallocating capital to private equity funds in search of higher returns. In the background of course, new legal and regulatory burdens that apply equally across both industries are starting to level the compliance playing field.
How is the ever-shifting balance between investors and managers affecting the role of legal counsel?
2017 was a record year for capital put to work and distributions back to investors, generating a cycle whereby investors have more money to invest back in the industry. As we run into 2019 we’re seeing a time in which fund sizes are getting larger with (especially in Europe) no trend of capping fund sizes; it is also a time when many managers are back in the market with their next fund in just two years. Consequently, investors have more choice than ever, and they know it, making them extremely disciplined and selective.
How is that playing out in practical terms?
Increasingly, I am instructed by LPs seeking their own Cayman legal counsel prior to committing capital. It has always been a mystery to me why investors are willing to rely on the GP’s Cayman counsel when committing significant capital to a new fund. The relationship between GP and LP is delicate, particularly in the early stages when the parties may be new to each other – it requires a balancing act and a careful negotiation; sitting on opposite sides of the negotiating table, depending on my instruction, keeps me on my toes.
With 2018 behind us, what do you expect to be the hot topics in 2019?
We are seeing huge changes and opportunity emanating from digtisation, fintech, crypto and digital assets; but the fundamentals are also changing at a fast rate – we are dealing with an evolving investor base, as well as the impact of legal and regulatory change on the industry. But for those trying to predict the future, as they consider taking the plunge with a start-up or a spin-off, the best advice I have heard from those that have recently done exactly that is to focus on the fundamentals: taking your time, doing your diligence, evidencing your track record and surrounding yourself with a strong team.
We’re not far into the year, but what are the early signs looking like?
Valuations remain high; but there is also a more positive message regarding a robust M&A market. In particular, venture backed IPO volumes have picked up over the course of the year. It seems likely we may continue to see a trend of venture backed companies being bought up by PE funds as ‘growth’ assets. The increase in downstream activity is what makes my job particularly rewarding, seeing a fund through formation and then helping it put capital to work is exciting. I think I can be justifiably hopeful that deal volume growth is set to continue with increasing momentum well into 2019.