What is fund formation/investment funds? Forum

[Anonymous User]

Title says it all. I’ve seen a lot of posts for these fields and I’m wondering what people do on a daily basis. I’m wondering if it is an area I should consider lateraling into.

I know what these areas are, but I’d like to know about the daily routines.

[UnfrozenCaveman]

draft LPAs, PPMs, maintain document checklist, review sub docs, receive comment memos and side letter requests, draft side letters, advise on regulatory issues

[Anonymous User]

Title says it all. I’ve seen a lot of posts for these fields and I’m wondering what people do on a daily basis. I’m wondering if it is an area I should consider lateraling into.

I know what these areas are, but I’d like to know about the daily routines.

Start here:

https://www.chambers-associate.com/prac ... management

https://www.chambers-associate.com/prac ... ried-frank

If you have more specific questions, happy to answer (anon b/c I work in this practice).

[Lukky]

I was curious about what kind of exits are available for this group. I know a lot of them go to a client firm (bank / PE firm), but have you seen anything else? Also, do you know anything at all about the lifestyle / compensation post-exit?

[Anonymous User]

I was curious about what kind of exits are available for this group. I know a lot of them go to a client firm (bank / PE firm), but have you seen anything else? Also, do you know anything at all about the lifestyle / compensation post-exit?

A lot more narrow options for post-firm life, but if you're coming from one of the main players (K&E/Simpson/Debevoise), you'll have a very good shot at going in-house to some larger banks that do some asset management work (think JPM/Northern Trust/Citi) or directly to a PE sponsor. It's harder to get your more run of the mill AGC role since you won't have much experience with public company type issues. There's some commercial contracting work in these roles, but it's mostly reviewing placement agent agreements, some NDAs and, tangentially, dealing with some deal docs for compliance with the underlying operating agreements.

Lifestyle while you're at a firm is steadily busy - I honestly think someone in fund formation/asset management is likely to bill more hours than an M&A/Cap Markets/Finance attorney, but the hours will be very steady and there's *technically* less fire drills. You might never have to pull all nighters or work off limited sleep, but you could have 4 consecutive months of 220+ hours if you're at one of the busier practices.

Lifestyle post-law firm varies wildly between sponsors. Some pay pretty close to law firm compensation (and if you leave at a high enough level, you could end up investing in the funds themselves and/or getting some carried interest) but will have intense hours, others still pay relatively well (200k-ish for a mid-level) and are as close to a 9-5 as you'll find. This will really depend on market: NYC and SF will be higher pay/worse lifestyles, while other markets will take a hit on pay but be much more sustainable.

[Lukky]

Thank you! That's incredibly helpful.

Just had one more question: I know that fund formation typically refers to private equity funds. I know that venture capital funds are technically also private equity, but they are usually structure differently (I've heard that they are a lot simpler than traditional private equity funds, but obviously can't verify). Do you ever come across venture capital funds in your line of work? Do you know how it compares to traditional PE?

[Anonymous User]

You don't draft PPMs per se, in-house counsel and the fund do it and you do the verification exercise and review on it. The PPM is the marketing document for the fund. You're then feeding through that information from the term sheet in the PPM into the LPA and other transaction documents. You're thinking about fund structures, fund economics (how the distribution waterfall works - i.e. how everyone gets paid). You're thinking about investment restrictions e.g. if the fund is known for its track record in x country, why would investors be comfortable with the fund investing in x. You're thinking about side letters - a Saudi investor might want to be excused from investments in alcohol. It's difficult to understand at first sight, but it's not that hard once you penetrate the surface of it.

It's high value transactional work, it's commercial, international. Everyone has an M&A team, funds is a little more exclusive. You need to know reg and it's both transactional and advisory. The exit opportunities in funds are pretty much the best of any practice area. Yes, they are funds. But they also pay really well. You can work at funds where you're beasted, but there are funds where you can make what you do in biglaw but pulling a 9-6 and no weekends. There's also the opportunity to get a little more involved on the business side in-house. M&A is known for exit opportunities but sometimes if you're a jack of all trades, you're a master of none and not all in-house opportunities pay well - unless you go to a super big corporate.

[Anonymous User]

On your last q, firms mostly do PE; hedge funds and VC are structured similarly and the terms will be broadly the same.

[Anonymous User]

Thank you! That's incredibly helpful.

Just had one more question: I know that fund formation typically refers to private equity funds. I know that venture capital funds are technically also private equity, but they are usually structure differently (I've heard that they are a lot simpler than traditional private equity funds, but obviously can't verify). Do you ever come across venture capital funds in your line of work? Do you know how it compares to traditional PE?

The work involved with launching a VC fund vs. a PE fund vs. a hedge fund is not terribly different (you're still going to be dealing with the same securities and regulatory issues, looking at the same type of documents and negotiations will generally look similar), but in reality there are different firms which have a different focus. Sidley, for example, does a lot of hedge fund work, but not as much PE work. Goodwin focuses on VC work.

A bigger difference is whether you're representing investors vs. representing sponsors or whether you're working on closed-end funds vs. open-end funds (as the mechanics are different, though not terribly so where you can't do both).

[UnfrozenCaveman]

VC funds are similar to PE funds. The two have sort of evolved from a different place, but concepts are largely the same. Some hedge funds have really simple documents.

[Anonymous User]

Do you travel a lot internationally? Looking for a practice group where i don't sit in the same office all the time.

[The Lsat Airbender]

Do you travel a lot internationally? Looking for a practice group where i don't sit in the same office all the time.

it's hard to overstate how not-actually-desirable it is to travel a lot (i.e. have clients in different time zones) in biglaw

[WhiteCollarBlueShirt]

Do you travel a lot internationally? Looking for a practice group where i don't sit in the same office all the time.

it's hard to overstate how not-actually-desirable it is to travel a lot (i.e. have clients in different time zones) in biglaw

Seconded, as it's the worst. Also, the answer is 'No'. Generally, there is little to no travel in funds (or any other corporate group). I've traveled for three reasons and never internationally, biz dev (to see out-of-state clients), to go to the main office and to assist with onsite due diligence for specific transactions (which is extremely rare for a biglaw lawyer to be doing). That said, a lot of firms will let lawyers visit other offices if they want to (but that's often on your own dime, only partially subsidized or to show face at the main office if you're in a satellite).

[Anonymous User]

Can anyone speak more about the exit opportunities? Is the SEC/CFTC an option? What about other non-financial regulatory biglaw practices? Thanks

[Anonymous User]

Can anyone speak more about the exit opportunities? Is the SEC/CFTC an option? What about other non-financial regulatory biglaw practices? Thanks

I'm a midlevel funds associate at a non-elite (i.e. not Kirkland, Simpson etc.) funds group so I'll chime in with my 2 cents. My understanding of those firms comes secondhand from speaking with people at those firms.

At the mega funds groups like Kirkland and Simpson and Latham and maybe others, they will split up the funds group (and for firms like these, funds is almost entirely PE or other closed-end vehicles) into funds transactional and funds regulatory. Funds transactional will focus on the formation of the funds (I'll describe below) and funds regulatory will advise on compliance/fiduciary issues, assist with regulatory exams, and opine on fund docs (i.e. disclosures and other risk factors that should be added).

Fund formation is pretty much what others have described, forming entities, drafting LPA's and PPM's and sub docs, etc. One thing to note, the bigger the client, the more repetitive the work will be. If you're working on the 9th version of a blackstone fund, you're going to be duplicating fund VIII and changing names and random things that might've changed since the last fund launch. This will likely be the majority of your time if you're at a place like Simpson (though I defer to others actually working at those places if I'm wrong). Kirkland's client base is very middle market-y so that's not necessarily the case for Kirkland.

The more middle market-y, the more unusual/atypical/different/"interesting" each fund will be and you actually have to think. In my experience, it's shocking what a lot of these middle market funds do and how off-market they want to be.

For hedge fund practices, in theory it's the same documents and same formation/regulatory issues but the focus is entirely different. Hedge fund work is generally mechanically simpler on the transactional side but more regulatory focused. Not to say every hedge fund lawyer is a good regulatory lawyer (many aren't in my experience) but it's hard to be good without having a decent base of regulatory knowledge, whereas I've seen big name PE funds partners who don't understand the regulatory side at all. This may change over time as the SEC has gotten more focused on PE the last 5+ years. As one data point, I know some firms like Proskauer explicitly split up the PE funds and hedge funds practice groups. Personally, I think as an associate it's great to do both PE and hedge funds work (double the exit options, and mixes up your day and keeps things more interesting) but I tend to think a generalist like that wouldn't be as good at PE than a funds associate who only does PE, or vice versa with hedge funds. Reputationally, you don't see any big name partners who claim to specialize in both.

As for exit options, SEC is possible as they do have a private funds unit. Obviously a focus on regulatory issues would help make you marketable for that. You can also become a compliance examiner for the SEC, though that is non-legal and lower paying (although still valuable work, as you can end up either as a CCO/AGC type afterwards).

Last thing to note, with respect to exit options, I'm not at one of the big firms so I don't know how it is for them but I do get spam from recruiters for in-house roles all the time. I've never taken an interview so I can't speak to if I would actually get a job, so that that for what it's worth. But one thing I want to reiterate and highlight, the smaller the funds group you go to the more generalist you become (i.e. both PE and hedge funds, both transactional and regulatory). Also, you get way more responsibility early and, in my opinion, you probably become good so much earlier. Biases aside, I've met some third years at some of the big firms who were honestly shockingly incompetent, whereas I as a second year more than capably handled multi-billion dollar fund closings as the sole associate. In many ways I would think that helps give you a leg up when interviewing but I'm only speculating, I've never interviewed for an in-house role.

Let me know if any other questions.

[UnfrozenCaveman]

Can anyone speak more about the exit opportunities? Is the SEC/CFTC an option? What about other non-financial regulatory biglaw practices? Thanks

I'm a midlevel funds associate at a non-elite (i.e. not Kirkland, Simpson etc.) funds group so I'll chime in with my 2 cents. My understanding of those firms comes secondhand from speaking with people at those firms.

[+] Spoiler

At the mega funds groups like Kirkland and Simpson and Latham and maybe others, they will split up the funds group (and for firms like these, funds is almost entirely PE or other closed-end vehicles) into funds transactional and funds regulatory. Funds transactional will focus on the formation of the funds (I'll describe below) and funds regulatory will advise on compliance/fiduciary issues, assist with regulatory exams, and opine on fund docs (i.e. disclosures and other risk factors that should be added).

Fund formation is pretty much what others have described, forming entities, drafting LPA's and PPM's and sub docs, etc. One thing to note, the bigger the client, the more repetitive the work will be. If you're working on the 9th version of a blackstone fund, you're going to be duplicating fund VIII and changing names and random things that might've changed since the last fund launch. This will likely be the majority of your time if you're at a place like Simpson (though I defer to others actually working at those places if I'm wrong). Kirkland's client base is very middle market-y so that's not necessarily the case for Kirkland.

The more middle market-y, the more unusual/atypical/different/"interesting" each fund will be and you actually have to think. In my experience, it's shocking what a lot of these middle market funds do and how off-market they want to be.

For hedge fund practices, in theory it's the same documents and same formation/regulatory issues but the focus is entirely different. Hedge fund work is generally mechanically simpler on the transactional side but more regulatory focused. Not to say every hedge fund lawyer is a good regulatory lawyer (many aren't in my experience) but it's hard to be good without having a decent base of regulatory knowledge, whereas I've seen big name PE funds partners who don't understand the regulatory side at all. This may change over time as the SEC has gotten more focused on PE the last 5+ years. As one data point, I know some firms like Proskauer explicitly split up the PE funds and hedge funds practice groups. Personally, I think as an associate it's great to do both PE and hedge funds work (double the exit options, and mixes up your day and keeps things more interesting) but I tend to think a generalist like that wouldn't be as good at PE than a funds associate who only does PE, or vice versa with hedge funds. Reputationally, you don't see any big name partners who claim to specialize in both.

As for exit options, SEC is possible as they do have a private funds unit. Obviously a focus on regulatory issues would help make you marketable for that. You can also become a compliance examiner for the SEC, though that is non-legal and lower paying (although still valuable work, as you can end up either as a CCO/AGC type afterwards).

Last thing to note, with respect to exit options, I'm not at one of the big firms so I don't know how it is for them but I do get spam from recruiters for in-house roles all the time. I've never taken an interview so I can't speak to if I would actually get a job, so that that for what it's worth. But one thing I want to reiterate and highlight, the smaller the funds group you go to the more generalist you become (i.e. both PE and hedge funds, both transactional and regulatory). Also, you get way more responsibility early and, in my opinion, you probably become good so much earlier. Biases aside, I've met some third years at some of the big firms who were honestly shockingly incompetent, whereas I as a second year more than capably handled multi-billion dollar fund closings as the sole associate. In many ways I would think that helps give you a leg up when interviewing but I'm only speculating, I've never interviewed for an in-house role.

Let me know if any other questions.

This is pretty much right/accurate.

[SamuelDanforth]

My question is more focused on VC in-house roles, but it seems like PE might have a similar dynamic. Anecdotally, many GC/AGC lawyers at major VC firms appear to have come from M&A or other general corporate backgrounds, rather than VC fund formation practices. Do fund formation associates mainly target compliance or other "internal fund formation" type roles, or are there opportunities to land in AGC or legal counsel roles?

[FluidMosaic]

Also - you want to be on the LP side if possible.

Significantly better lifestyle in my opinion due to not having to work for PE folks who have higher turnarouns time expectations.

I know some investment funds practices who have fire drills 24/7 during side letter negotiations due to short turnarounds required by their sponsors/partners.

Caveat that alot of LP negotiation is now done in house depending on LP size.

[Anonymous User]

Do fund formation associates mainly target compliance or other "internal fund formation" type roles, or are there opportunities to land in AGC or legal counsel roles?

Also wondering about this question.

[Anonymous User]

You don't draft PPMs per se, in-house counsel and the fund do it and you do the verification exercise and review on it. The PPM is the marketing document for the fund. You're then feeding through that information from the term sheet in the PPM into the LPA and other transaction documents. You're thinking about fund structures, fund economics (how the distribution waterfall works - i.e. how everyone gets paid). You're thinking about investment restrictions e.g. if the fund is known for its track record in x country, why would investors be comfortable with the fund investing in x. You're thinking about side letters - a Saudi investor might want to be excused from investments in alcohol. It's difficult to understand at first sight, but it's not that hard once you penetrate the surface of it.

It's high value transactional work, it's commercial, international. Everyone has an M&A team, funds is a little more exclusive. You need to know reg and it's both transactional and advisory. The exit opportunities in funds are pretty much the best of any practice area. Yes, they are funds. But they also pay really well. You can work at funds where you're beasted, but there are funds where you can make what you do in biglaw but pulling a 9-6 and no weekends. There's also the opportunity to get a little more involved on the business side in-house. M&A is known for exit opportunities but sometimes if you're a jack of all trades, you're a master of none and not all in-house opportunities pay well - unless you go to a super big corporate.

Hi - I'm a senior associate at one of STB/K&E/Debevoise. I just had a client ask me about something that sounds similar to the bolded language. Would you mind sharing what firm you're at (fine to give a range of similar firms) and a little more about what this process entails at your firm? We normally review PPMs and footnote them, etc., but "verification" is a brand new request for me (along with the ~20 people on this fundraise) and I'm just trying to figure out how common this is in the US market. Also is this a UK-regulated client doing it for FCA reasons or do they think there's a SEC angle?

[Anonymous User]

please delete double post.

[Anonymous User]

Do fund formation associates mainly target compliance or other "internal fund formation" type roles, or are there opportunities to land in AGC or legal counsel roles?

Also wondering about this question.

It's possible to end up in AGC/legal counsel roles. An M&A lawyer will also have a credible shot at the job because of course an AGC will be assisting in the purchase and sale of the companies the PE fund buys, but they'll lack the fund formation experience that you bring to the table. Likewise you may lack M&A experience but you'll understand how the fundraising process works. In my time as a funds lawyer I've worked with internal counsel from both paths. I interviewed for a few different generalist internal counsel roles about a year and a half ago as a midlevel. I withdrew from a few opportunities that weren't right and then didn't get the one that I was actually interested in, but I didn't think that my practice area was holding me back and instead I just didn't win against the other candidate. You'll have learned how to market your skills and play to your strengths by the time it's relevant.

Can anyone speak more about the exit opportunities? Is the SEC/CFTC an option? What about other non-financial regulatory biglaw practices? Thanks

SEC is definitely an option. I don't think I've ever seen a posting below SK-13, which means you need three years of experience, and I wouldn't be surprised if you aren't a really competitive applicant until you've been out of law school for 4-5 years. A poster above mentioned the Private Funds Unit, which is part of the Division of Examinations (formerly OCIE). PFU is pretty small and even if you didn't end up in PFU, every exam conducted by the Division of Examinations has an attorney-adviser staffed on it, and they definitely need experience with the Advisers Act, which is something you'll learn as a funds attorney. In addition to Examinations, the SEC's Division of Investment Management deals exclusively with the Advisers Act and the Investment Company Act, which you'll be very experienced with as a funds attorney. IM is the group that writes no action letters, writes the rules interpreting the laws and interfaces with Enforcement/Exam on interpretive questions that arise in the work of those divisions.

Getting hired for SEC jobs can be pretty tough. A friend who has some information from recent searches said they were getting hundreds of resumes for each posting, and that they were even getting PARTNERS from good firms applying. While a poster above noted that SEC work is lower-paying, just about everything is lower-paying compared to biglaw and the SEC actually pays better than the rest of the Federal government. They're on the SK scale, not the GS scale, which is higher.

I've worked at two firms and never seen substantive CFTC work (i.e. anything beyond filing 4.13(a)(3) exemptions) handled out of the funds group, but maybe other firms work differently. In my experience, a lot of biglaw CFTC work ends up being handled out of whatever group works on derivatives. But this could be completely firm dependent.

[Anonymous User]

Also - you want to be on the LP side if possible.

Significantly better lifestyle in my opinion due to not having to work for PE folks who have higher turnarouns time expectations.

I know some investment funds practices who have fire drills 24/7 during side letter negotiations due to short turnarounds required by their sponsors/partners.

Caveat that alot of LP negotiation is now done in house depending on LP size.

LP side is not an area with much growth potential - it depends on what you're interested in doing. If you want to be a partner at a law firm, LP-side is definitely not the growth area (whereas I think private funds as a whole is probably the "easiest" practice in which to make partner at a big law firm right now). It's also even more limited on exits, since LPs don't hire that many in-house counsel. Probably a good practice to become a $300k/year counsel for life, though.

And some LPs are absolutely awful to work for (think foreign sovereigns, in particular), way worse than any PE firm, so you should know the client base (private foundations and university endowments, you're probably set; foreign sovereigns, get ready for crazy hours and crazier clients).

[Anonymous User]

This thread has been really helpful, as I've been wondering the same stuff. One question I have: what does the pre-closing "fundraising" process look like at a Deb/KE/STB?

[Anonymous User]

This thread has been really helpful, as I've been wondering the same stuff. One question I have: what does the pre-closing "fundraising" process look like at a Deb/KE/STB?

[mods: there's no way I'd be this frank if my name were attached. I'm responding on topic. Please don't out me]

I was in the funds group of two different large firms, one of which was Deb/KE/STB and expect that it's broadly the same at any good firm. Namely:
-Draft the PPM. Usually this involves starting with the last PPM, changing III to IV everywhere, updating risk factors, adding a bunch of footnotes, whatever the hell tax does, asking the client to make some fancy charts showing how they're definitely going to make money, and sending it to LPs. There are always going to be a few points that are oddly controversial - either because a MD at the client really doesn't want to talk about the deal where they lost a shitload of money or maybe there was an enforcement action concerning something the client does so you're trying to make sure the disclosure about a particular point is clear -- but overall this is just between you and the client. Because it's written in plain english and is theoretically the main selling document, the business team is definitely going to read it and have dumb comments that you nonetheless dutifully implement.
-Send the LPA to potential investors.
-Meanwhile, you draft the LPA. This has already begun before you send out the PPM, but you may not be finished by the time you send the PPM to investors. Like the PPM, you'll probably use the last fund's LPA as a starting point, but because this is actually going to govern what happens for the next 10 years, people are going to read the hell out of it. They'll be thinking "oh, we got screwed when we did deal X and couldn't charge the expense of some weird thing to the fund, so make sure that we can do so this time around" or "Jane wants the ability to retire in two years so make sure he isn't part of the key person clause." You'll probably focus on being really aggressive here because you're going to negotiate it.
-Negotiate the LPA with investors. They're going to say "we don't like that you can charge the expense of your private jet to the fund" (in funds that can charge this expense, there is a nearly 100% chance that any state or local pension plan that invests in the fund will object, though we'll see what happens post-COVID because now the funds have a really good argument) or "we don't like that Jane isn't a key person, we think she's really important to the returns of the fund" and you'll have to decide whether to give in. Changes you make to the LPA affect all investors, so you try to do those sparingly because you want to give the smallest amount possible. So you might put Jane back into the key person clause of the LPA.
-Draft the sub book. This is the agreement by which the actual securities in the fund are sold. It's 95% the same across all funds advised by a given firm so you're just updating III to IV and making sure that any new regulations are reflected appropriately (e.g. the change to the definition of accredited investor late last year).
-Negotiate side letters with investors. This is basically a separate agreement that says "notwithstanding the LPA, the terms of the deal just between you and I are modified as follows: ___". So you might have a side letter saying that if the expense of a private jet is charged to the fund, a pro rata portion will be rebated to a particular investor with a lot of bargaining power. Or maybe if the investor has less bargaining power, you'll promise an annual update on how much you used the jet so they can see that it's being used to travel to some random factory in Peoria, not to go on vacation in Aruba.
-Review sub books submitted by investors and ask for corrections when necessary. You'd be amazed how many sophisticated institutions apparently can't hire a competent lawyer, so the sub book will be filled out by Bob Johnson, the individual and then in one part of the sub book they'll check a box indicating they're a corporation, which you need to follow up on. This is classic junior work because it's tedious and pretty easy to teach, but it's super high stakes -- it could be that Bob Johnson is just some rich guy who has no idea what s/he is doing and needs to change the answer indicating he's a corporation, or it could be that Bob is the lawyer for some random corporation that's subscribing and yet he didn't give you any information about the company. You just need to keep an eye out for inconsistencies and flag things to a midlevel or senior associate.
-After they've received enough sub books, have a closing. This means the fund countersigns the sub books, thereby accepting the subscriptions from investors. At the same time the fund countersigns the sub books, the law firm will issue an opinion stating that the fund has a valid exemption from the 33 and 40 Acts, and is a partnership under the internal revenue code. The partner signs this opinion because s/he knows the associates have closely reviewed the sub books to make sure they've flagged, e.g., any investor who didn't indicate that they're an accredited investor (or gave an answer to the accredited investor question that was inconsistent with an answer elsewhere in the sub book) or who gave a confusing answer.

This omits a lot of detail but is hopefully enough that you can talk for 30 seconds during an interview.