Editor: Ms. Painter, would you tell our readers something about your professional background?
Painter: I graduated from law school in 1985 and started working in the private equity area almost immediately. During the initial years of my practice I handled a variety of corporate matters, but I was increasingly drawn to fund formation work. About four years into my career I formed a private equity practice at Testa Hurwitz & Thibeault, and I have concentrated on private equity ever since. That grew into a fairly substantial group over time, and when Testa Hurwitz dissolved, we brought it over to Proskauer.
Editor: Speaking of which, would you share with us the things that attracted you to Proskauer?
Painter: Timing is everything. While I was very disappointed with Testa Hurwitz's dissolution, it happened at a point in time when expertise in the private equity area was in high demand. Our group was extremely fortunate in having opportunities to affiliate with just about any firm of consequence. We tried to find a firm that could meet our clients' needs. The client group was quite significant, consisting of about 150 fund sponsor relationships as well as 40 to 50 limited partner relationships, and the needs of our clients were varied. They resided in a variety of places, but the practice was essentially divided about equally among Chicago-west, Chicago-east and Europe. Over the 20 years that I have been in practice, the industry has changed substantially. Firms have grown, and the legal and regulatory demands that are made on them have expanded exponentially. The footprint that our practice makes today is really quite global, so we were looking for a firm capable of meeting the needs of a complex and diverse group of clients. Proskauer has an extensive geographical reach, in addition to possessing all of the practices necessary to serve a client base such as ours. Proskauer also has a culture that is very supportive of meeting client needs with the very highest caliber of legal service. We work in a group dynamic, and we were looking for a firm that understood the need to bring all of the resources it possessed to bear on addressing a client's matters. This institutional attitude on the part of Proskauer made for a perfect fit.
Editor: Please tell us about your practice. How has it evolved over the course of your career?
Painter: When I began my practice, the private equity industry was in its infancy. My practice has evolved as the industry has evolved. From very modest beginnings, private equity has become a very significant force in the American, and the global, economy, and firms have become increasingly specialized and sophisticated. From an industry that was essentially relationship-driven, it has taken on a variety of institutional attributes as well.
Editor: And the firm's private equity group? How has that developed?
Painter: The group has about 40 attorneys who focus exclusively on fund formation. Within that activity, we cover the entire spectrum of asset class. That includes venture debt, middle market buyouts, distress debt, intellectual property, and so on. We do it all. A substantial addition to the group recently has been Chris Wells, who has a great deal of expertise in the hedge fund area. We also represent a number of fund-of-funds and secondary funds, both on the formation and on the transactional side.
Editor: How do you define private equity?
Painter: Private equity consists of any pooled vehicle whose primary business objective is to make investments in privately negotiated transactions.
Editor: You have been engaged in advising private equity fund managers for a considerable time. What are the key issues today?
Painter: On the capital formation side, we are currently in a rising cycle across the entire spectrum of asset class and across the various geographies. This is somewhat unusual, and it informs much of what we do. Another important theme for us today derives from the fact that many of the firms with which we deal have matured to the point at which they are in the process of thinking through the institutionalization of their operations, in addition to the expansion of those operations. In addition, the secondary transaction market has been very robust recently. This remains an illiquid asset class, and its recent growth has changed some of the dynamics of the industry. The secondary market has become much more efficient. As far as portfolio investments are concerned, valuations are rising, although there is still some degree of discipline present and the exit environment is becoming increasingly favorable. If there were one headline on the portfolio investment side, it would be discipline on the pricing. I think return expectations have declined throughout the asset class.
Editor: Internal governance has been on everybody's radar screen for the last three or four years. Is this affecting your practice?
Painter: Absolutely. The appearance of this issue in my practice is a reflection, I think, of how the industry has matured in recent years. The regulatory environment has become much more stringent for almost everyone in the industry, and the process of governance - as it concerns valuation, as but one example - has captured the attention of everyone. Whether it is possible to have industry-wide standards across all of the geographies in which we operate remains to be seen, but I think the focus on internal governance is here to stay.
Editors: Would you tell us how divestment and exit strategies are affecting your practice?
Painter: It is hardly news that it is much more expensive to be a small public company today than it was in the past. As a consequence, many of our client portfolio companies are being positioned early on for an M&A exit, as opposed to an exit in the public markets. If exit strategies are moving in that direction across the board, this development is going to impact the dynamics underlying how investments are managed and capital spent.
Editor: Please tell us about your representation of general partners in the formation and maintenance of private equity funds. Is this aspect of your practice growing?
Painter: This is the core area of our practice, and it has been growing for the past 20 years. This year was terrific, and I anticipate that we will have represented funds sponsors raising in excess of $22 billion during the course of it. I hasten to add, we also have a substantial limited partner representation practice.
Editor: Do you also represent funds as contrasted with general partners?
Painter: There was a time when I handled both, but that was a long time ago. My last real transaction was five or six years ago. Proskauer has a terrific transactional practice, however, and it constitutes a great match for our client base. For instance, we possess considerable expertise in the life sciences, and the synergies that derive from a variety of Proskauer practice groups is of great benefit to our client base. The same is true of Proskauer's M&A expertise, where clients of ours are seeking an M&A exit.
Editor: You are representing both domestic and foreign institutional investors. Are there particular themes that attend your international practice?
Painter: One of the reasons we have been so successful in our activities outside the U.S. is because of the way we work with our tax group. There are several tax partners who are resident within the private equity group, and their particular expertise is in international tax. One of the principal issues for the non-U.S. investor is taxation, and the Proskauer platform enables us to address it very effectively.
Editor: What about hedge fund reporting?
Painter: The reporting guidelines here in the U.S. are less consistent than those in place in Europe, and the lack of consistency is of deep concern to our non-U.S. client base. With the passage of time, the reporting requirements are becoming more uniform - certainly this is less of an issue than it was eight or ten years ago - but we still have a ways to go.
Editor: Are there particular issues that an American investor should be aware of in entering the European arena?
Painter: With globalization, I think there has been significant progress. The private equity bar consists of a relatively small group of people who have worked hard to really wrap their arms around the global nature of the asset class. Many of the issues which arose in the early days of this industry have been resolved. On the funds formation side, there is significant variance as between U.S. and non-U.S. funds. Each year that variance becomes less significant, however.
Editor: Speaking of globalization, how has it affected your practice?
Painter: Globalization has had a very positive impact on our practice, and, as I say, the Proskauer platform permits us to address the issues of globalization very effectively. Increasingly, U.S. firms are looking to Europe and Asia for both their limited partner base as well as their transactional activities. From a lawyer's perspective, it is crucial to have a firm with the kind of resources that Proskauer enjoys if one is going to stay abreast of these global developments.
Editor: As money moves around the world in search of a return, is anything like a global standard governing international investment emerging?
Painter: No, although there is always considerable discussion about it. A global standard on anything requires a great deal of convergence, cultural as much as legal and regulatory, and I think there are too many constituencies with a stake in how things are regulated now to see a new, single regime emerge any time soon. There is some movement in this direction, but it is going to be a long time before meaningful progress occurs.
Editor: What about the future? Where would you like your practice to be in, say, five years?
Painter: One of the reasons we have been so successful in our practice is that we serve as counselors to our clients, as opposed to deal-makers or technicians. That entails an ability to bring a multidisciplinary approach to the resolution of their problems, together with an industry-wide perspective. I am hopeful that over the next five years or so we will continue to be able to utilize this model - that of counselor - across all of the geographies we are serving.