Editor: Your firm has one of the world’s leading private investment funds practices. What is the role of the Boston office?
Hill: Our funds group is considered to be one of the leading groups out there focused on fund formation and the needs of alternative investment managers and investors because our practice is so large and diversified in what it does. We have a dynamic interdisciplinary team of lawyers offering a complete package of services to private investment funds and institutional investors globally, with over 100 lawyers across the firm who are part of our group.
About 40 of these lawyers are resident in Boston, including 14 partners. The group includes ancillary practitioners in such areas as tax, ERISA, labor & employment, securities and regulatory matters who are focused on the needs of our clients.
Our practice spans the universe of funds-related matters -- it’s not limited to any particular sector or geography. We have a broad fund formation practice covering all types of funds, including buyout, venture, mezzanine, fund of funds, secondaries funds, real estate, special situations and hedge funds. We also have a significant practice helping institutional investors such as public pension plans, foundations and family offices with review and execution of their alternative investments. The third major practice area for us is secondary transactions, which involves the buying and selling of interests in investment funds and portfolio companies from existing investors -- and we’ve been working on these transactions along with our clients since the inception of that market.
But we don’t just form funds and work on investments: we know and understand alternative investment managers and their day-to-day operations, as well as the market and the history of the industry. Our goal is to really form a broad partnership with our clients and get to know them inside and out. Our clients find that our broad knowledge of alternatives and experience in the sector are really important to their growth and success. We have always been dedicated to the proposition that if our clients are successful, we’re going to be successful, so we work really hard to do the best we can and bring more to the table than just being legal technicians.
Editor: Tell us about some of the other strengths of the Boston office.
Hill: We have top-tier practices in a number of areas in addition to our funds practice, including a very well-regarded multi-tranche finance practice and a strong M&A practice, both of which have been symbiotic with our funds practice and vice versa.
We also have a nationally known litigation practice. We have litigators focused on helping clients protect and exploit their IP assets and litigate complex disputes related to patents, trade secrets, copyrights, trademarks and technology-based licenses. Our clients are in life sciences, telecommunications, information technology, energy and many other sectors. In addition, we have a dynamic corporate defense and investigations group led by a former Massachusetts attorney general, who also chairs the firm’s pro bono initiative
From its early days, Proskauer has been known for its preeminent labor and employment work. Our Boston-based lawyers represent employers doing business in the region and across the country in matters that include discrimination, executive compensation and employee benefits, labor negotiations, immigration and all related policies and procedures.
Editor: Is the Boston area unique with its history of being an incubator of new businesses?
Hill: Yes. The area clearly attracts lots of very smart people, growing out of the many colleges and universities. That has fed into many start-up companies and the investment and service firms that support them, as well as the educational and healthcare institutions. Boston seems to have maintained its entrepreneurial spirit despite the maturity of the area.
Editor: What are your responsibilities as co-head of the Private Investment Funds Group?
Hill: We have a phenomenal practice and group of people, and I feel that my main responsibilities are to help us continue to grow and to maintain our top-tier funds practice. I want to ensure that we have an environment where our people – which are our greatest asset – feel like they can learn and grow every day. Happy, successful people will translate into happy and successful clients.
At a more granular level, part of my job is the day-to-day management of the group as well as helping to set and achieve long-term strategic goals. The market is always evolving, so we need to see the trends and anticipate change, so that as our clients grow or their needs change, we’re going to be able to help them succeed.
Editor: In representing U.S. and non-U.S. sponsors in fund formations and portfolio investment activities, what issues are of particular importance?
Hill: What people are very focused on these days is defining the market and keeping current with trends that affect it. Our broad practice gives us a good sense of what’s going on in alternatives and what people are doing, whether it is over the past six months or over the past two years. This enables us to help our clients guide their activities in terms of how they structure their funds, what terms they set, and whether they want to be right down the middle or try to shape their offerings in a way that will match different goals. The fund formation process hasn’t changed much at a macro level, but diligence by investors is becoming deeper and everything seems to be up for negotiation. No one is shy anymore.
Editor: There have been many complaints about the proliferation of new regulations. What compliance issues are of particular concern to U.S. and non-U.S. sponsors and how are they being addressed?
Hill: There are complaints certainly. It’s becoming a much more regulated world and the regulations were not necessarily written with alternative investments or private equity in mind. In many cases, the regulations don’t fit very well with what happens in practice, and that is particularly true in the case of alternative investments.
Probably the most frustrating thing for fund sponsors is the application of rules and regulations to their business -- rules that are perceived to add many layers of cost and complexity but that don’t seem to add much value to the fund sponsor or investors. It seems like each jurisdiction is coming out with a new rule that applies or form to be filed all the time – and sponsors feel that the time they have to spend on compliance detracts from the time they would otherwise spend executing the investment strategy they were hired to pursue.
Editor: What operational issues are triggered by the new regulations?
Hill: Right now the biggest headache is that so many fund sponsors are required to become registered investment advisors (and even those that are exempt may need to make periodic filings). This means that they become subject to a complex set of rules related to how they manage their organizations and market their funds.
Previously, while there were certainly many laws that applied to the industry, actual registrations and regulatory oversight were reserved for a smaller subset of the industry. There were many exemptions for private equity and how private equity funds were formed and fund sponsors operated. Now we’re moving into a world that is more regulated. Many fund sponsors find that the way they are now regulated is confusing because the rules weren’t written for private equity – the proverbial square peg in a round hole.
Editor: What should sponsors be particularly mindful of in order to avoid being the focus of regulatory enforcement activities?
Hill: They need to be mindful of what the rules are and try to understand and deal with them. Where people try to resist the rules or don’t agree with the rules and try to push the envelope or go a little too far into the gray area there can certainly be problems down the road.
Editor: Do you see sponsors adopting compliance programs in response to the new regulations?
Hill: Yes, all registered investment advisors are required to adopt and have compliance programs in place. Even some exempt firms, such as those that advise venture capital funds, are adopting compliance programs. With all the scrutiny that is hanging over alternative investments and private equity, people are becoming more mindful of the need for compliance guidance, whether that is just part of an employee handbook or whether it is a more targeted, comprehensive compliance program.
Editor: What issues arise most frequently in the negotiation of alternative investments and secondary transactions?
Hill: When you’re negotiating with investors in raising capital for funds, the hot topics have been surprisingly consistent over the years; the investors look at the quality and stability of the management team and the basic terms of the fund, including fees, investment restrictions and rights of the investors.
With respect to secondary transactions, there is little that is new at the moment. In the past 12 months we have seen the return of the big portfolio transactions. There seem to be more large institutions rebalancing their portfolios, whether that is driven by the Volcker rule or otherwise.
While parties are always focused on price, some sellers are also very focused on execution risk and complexity - they may choose a trusted counterparty that will be able to complete a large or complex transaction in a discrete manner over broadly marketing a portfolio.
It’s really been a refreshing change in the market to see the big deals come back. That will probably continue for the next couple of years given the regulatory and banking environment.