No one-trick ponies - Linklaters' IMG and the qualities that set it apart
This article was first published on the Linklaters Alumni Portal
"We must continue to be nimble because the next fund will always test you" - Jonathan de Lance-Holmes - Investment Management Group Partner)
On the face of it, global funds activity has been restored to glowing health after the hiatus of the post-credit crunch years. The overall figures for 2015 and 2016 for private equity-backed buyout deals totalled in excess of US$400 million in each case, numbers that haven't been seen since the halcyon days of 2007; funds such as CVC VII, Sixth Cinven and Advent Global closed, over-subscribed, after an encouragingly short period of time. The hunger of investors, it would seem, is returning to pre-crash levels.
This is not 2007, however. That investment funds market has gone forever, replaced by a world in which seed capital can still be hard to find in certain quarters, hedge funds are as prone to liquidation as at any time since the financial crisis and real estate funds are still sluggish by comparison with their salad days. More than 80% of funds now have independent directors, a sharp rise on a decade ago, and evidence is gathering that they are pushing for something different from the law firms that advise them.
Cost-effectiveness is not the least pressing of investment funds' concerns, as Matt Keogh, Global Head of Linklaters' Investment Management Group (IMG), acknowledges: "We've noticed a definite increase in focus by our clients on cost and value and it's something which we've taken steps to meet," he says. "Alternative pricing models that still ensure the quality for which we are known and sought are an obvious part of the equation and we're also investing heavily in technology in order to improve the efficiency of our service."
Beyond cost, though, value for money is increasingly seen by clients as inseparable from a funds practice that offers the widest possible range of expertise across all sectors. This represents a marked shift from the specialisation-led years of the early 2000s, as Jonathan de Lance-Holmes, a long-standing London-based funds partner at Linklaters, explains: "The market has changed beyond recognition in recent times. The specialised funds practices, particularly in London, historically had a lot of success focusing on a single product for leading European and American houses. That's no longer enough – credit funds, so widespread today, basically didn't exist five years ago, infrastructure funds have fragmented and the client feedback that we're getting is that if they're not specifically looking for advice involving a standard model of transaction, they will look away from the single product merchants."
This move towards across the board expertise is meat and drink to the IMG at Linklaters, whose flexibility and breadth of skill set has long been both its calling card and unique selling point. "Being both a broadly-based practice and a full-service firm undoubtedly distinguishes us from much of the competition," Matt Keogh suggests. "Some of the leading American firms, for example, tend to focus on a particular segment of the market, they rarely handle the local tax or employment aspects of funds and they have no particular focus on the regulatory side either, which has become such a crucial element of the modern funds market. For us and our clients, spotting tax and regulatory issues that will arise from a particular transaction is critical and it's fair to say that the IMG is working more closely with other departments across the global network at Linklaters than we ever have before."
"We believe that our funds model has an inherently better ability to be flexible than most," Jonathan de Lance-Holmes concurs. "Adapting our skill sets, diving deeply into a completely new sector, is something that we've always enjoyed and found to be of greatest interest. IMG is part of a firm with a shed-load of expertise in so many other areas, which is vital; if clients are investing in debt, they need the widest possible pool of knowledge from which to draw, not just a firm that will churn out the same product repeatedly. Wherever a fund happens to be based, Linklaters has a team that can plug into it. Our London arm is based in a city with huge alternative investment capacity, a fact that is not going to be changed by Brexit. Some fund managers may move to Luxembourg or Paris but London people truly understand how the market works. The structure of funds may change – and we'll certainly be advising our clients on that – but the UK will remain central to a lot of these transactions."
It is the rise in relevance of American law, however, that now presents Linklaters and other UK-headquartered global firms with their greatest challenge and competition in the funds space. American firms have poured into London and continental Europe, recruiting some of the leading funds lawyers across a number of jurisdictions to their cause. "The Americans are clearly our major rivals in London and globally and have had excellent success in some sectors over the last five years." Matt Keogh admits. "We feel that we can offer prospective funds lawyers plenty to match them, however. The breadth of our practice is one that we've discussed; there is also the culture and training available here and of course, we are one of the very few London-based firms with a market-leading funds operation in New York."
That credibility in a jurisdiction which continues to generate more than 60% of global funds transactions is one to which Jonathan de Lance-Holmes returns. "We are alone in possessing a funds axis that includes Europe, Asia and a genuinely powerful domestic US practice," he says. "Scott Bowie built that New York practice to last and it has put us ahead of our rivals who have good European practices but non-existent, or barely adequate, ones in New York. The American firms, by contrast, are strong in their own backyard and in London, albeit with a narrower focus than us, but have few resources to call on in the rest of Europe or, very often, Asia."
With political and economic uncertainty likely to be the order of the day for the next few years, it would seem, therefore, that Linklaters is uniquely well-placed to meet the expectations of its still hungry global investment client base. "We must continue to be nimble because the next fund will always test you," Jonathan de Lance-Holmes counsels. "Even if I don't expect tumbleweed to be blowing down the City as a result of Brexit, there's no doubt that it will alter the way in which fund managers operate and we need to be prepared for that. In the unlikely worst case scenario of every London fund manager moving to Brussels, Frankfurt or anywhere else, we're still far better placed to deal with the consequences than any other law firm I can think of."
Strategic preparation occupies a large part of Matt Keogh's thoughts as well. "IMG has just concluded a strategic review to ensure that we're reading the economic and investment cycles correctly and in particular the changing needs of its clients," he says. "As a group, we're extremely ambitious – we want to be perceived as a market leader in all the jurisdictions in which we operate. Are we there yet? No, not in all of them, so there is still work for us to do. That said, we do have the resources and the expertise that give us the best possible chance of achieving our goal."