What is fund formation/investment funds? Forum

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marginflex

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Re: What is fund formation/investment funds?

Post by marginflex » Wed Feb 17, 2021 9:59 pm

Anonymous User wrote:
Sat Jan 09, 2021 12:00 pm
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.

This is fantastic, thank you. I am going to be a summer coming into one the private funds groups you mentioned. Do you mind shooting me a dm?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Wed Feb 17, 2021 10:41 pm

Anonymous User wrote:
Wed Feb 17, 2021 6:00 pm
Anonymous User wrote:
Sat Jan 09, 2021 12:00 pm
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.
Great insights thanks! How would you describe the hours for doing this type of work compared to other corporate practices?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Thu Feb 18, 2021 2:52 pm

Anonymous User wrote:
Wed Feb 17, 2021 10:41 pm
Great insights thanks! How would you describe the hours for doing this type of work compared to other corporate practices?
The hours in biglaw stink. If you’re thinking about quality of life, focus on consistency and predictably rather than volume. In that respect, I’d say funds is one of the better corporate practices. You’re less likely to get a weekend blown up without notice because the timelines are a little more set and funds are more likely to be raising on a 2-5 month timeline rather than a two week timeline. I certainly had my share of canceled plans, but in general your schedule is slightly more in your own control than in M&A or bankruptcy.

As an associate though, you just need to do exactly what you’re asked at whatever time you’re asked, even if it’s Saturday night and you had plans. And if you work for a client, a partner or a senior associate who decides to do something crazy then all the stuff I said above evaporates. This is especially the case if you are trying to distinguish yourself rather than just chill and bill. For instance, one of the partners I worked with most closely was a busdev machine which meant we were always grinding to impress some new client with our ability to move mountains. I really learned a lot working for her and I appreciated that she was always really gracious about giving me client facing assignments or other opportunities to look good in front of decisionmakers, but it can be a shitload of work. I do think funds is one of the better “major” corporate practices but that doesn’t mean it’s easy, especially if you are aiming high.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Sun Feb 21, 2021 10:00 pm

Question for current fund formation / investment funds associates:

I plan to start my career as a first-year fund formation associate. Long term, I'll want to lateral to an unrelated midlaw regulatory practice. Is fund formation a bad choice? Should I do generic litigation instead if my firm doesn't have the practice area I want?

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Re: What is fund formation/investment funds?

Post by UnfrozenCaveman » Mon Feb 22, 2021 10:31 am

Anonymous User wrote:
Sun Feb 21, 2021 10:00 pm
Question for current fund formation / investment funds associates:

I plan to start my career as a first-year fund formation associate. Long term, I'll want to lateral to an unrelated midlaw regulatory practice. Is fund formation a bad choice? Should I do generic litigation instead if my firm doesn't have the practice area I want?
What is the unrelated regulatory practice? Depending on the group, you may be asked to do fund regulatory work (SEC mostly, but a spattering of other stuff).

Although the skills are relatively transferable to other corporate practices, fund formation itself can be relatively niche for resume purposes.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Sun Mar 14, 2021 9:57 pm

Would the Fund Formation / Investment Funds / Asset Management practice be comparable to the VC funds skillset that Cooley, WSGR, Gunderson, Goodwin, etc., look for?

As in, if I start in Investment Funds, would an emerging companies/ VC fund practice area be a possible next step if I don't like it?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Mon Mar 15, 2021 8:39 am

Anonymous User wrote:
Sun Mar 14, 2021 9:57 pm
Would the Fund Formation / Investment Funds / Asset Management practice be comparable to the VC funds skillset that Cooley, WSGR, Gunderson, Goodwin, etc., look for?

As in, if I start in Investment Funds, would an emerging companies/ VC fund practice area be a possible next step if I don't like it?
Yes. PE funds and VC funds are basically the same practice, legally speaking. The VC funds practices you mention hire laterals heavily from the top PE funds practices.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Mon Mar 15, 2021 10:49 am

Anonymous User wrote:
Mon Mar 15, 2021 8:39 am
Anonymous User wrote:
Sun Mar 14, 2021 9:57 pm
Would the Fund Formation / Investment Funds / Asset Management practice be comparable to the VC funds skillset that Cooley, WSGR, Gunderson, Goodwin, etc., look for?

As in, if I start in Investment Funds, would an emerging companies/ VC fund practice area be a possible next step if I don't like it?
Yes. PE funds and VC funds are basically the same practice, legally speaking. The VC funds practices you mention hire laterals heavily from the top PE funds practices.
With one caveat - if you're doing a Registered Fund-focused AM practice or you are focused more on regulatory than actual fund formation, it may be harder to make that switch.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Mon Mar 15, 2021 11:02 am

Some posts in this thread discuss the SEC as a possible (but competitive) path with fund formation. How hard is it to lateral from NY to DC in general? I'm not seeing a ton of fund formation associates, Googling broadly in DC, but I wasn't sure if there is a comparable regulatory practice that might be big in DC?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Sat Apr 10, 2021 10:41 am

How much “law” is there in funds work compared to M&A or a general corporate practice? Do funds lawyers ever write memos or do legal research?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Sun Apr 11, 2021 2:15 pm

Anonymous User wrote:
Mon Mar 15, 2021 11:02 am
Some posts in this thread discuss the SEC as a possible (but competitive) path with fund formation. How hard is it to lateral from NY to DC in general? I'm not seeing a ton of fund formation associates, Googling broadly in DC, but I wasn't sure if there is a comparable regulatory practice that might be big in DC?
There isn't really much in the way of a separate regulatory practice. Most firms will have a few lawyers who specialize in the more regulatory aspects of the practice (advising on filing Form ADV, e.g.), but that's not "regulatory" in the sense of appearing in front of the SEC and not usually done in DC. The SEC takes a very light-touch regulatory approach on private funds, so disputes with the SEC are not frequent. There are some private funds lawyers generally in DC (some big clients, like Carlyle, are located there), but DC is not at all a big market for private funds overall. You'd have to just get lucky that a position opened up.

Registered funds (mutual funds, ETFs, etc.) is a much bigger practice in DC because it involves a lot of interaction with the SEC. But that's a very different practice from private funds. This thread is mostly about private funds, and registered funds would really be a separate discussion.
Anonymous User wrote:
Sat Apr 10, 2021 10:41 am
How much “law” is there in funds work compared to M&A or a general corporate practice? Do funds lawyers ever write memos or do legal research?
Essentially never, assuming you're talking about private funds (private equity, venture capital, hedge funds). I think it happens pretty often in registered funds (mutual funds, ETFs), but as discussed above that's at most firms a completely different practice.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Mon May 17, 2021 4:49 pm

Can anyone say more about lateralling from a generic PE fund formation group to a VC fund formation group?

Or from a generic PE fund formation group to an in-house role at a VC fund?

Is either a doable move to make?

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Re: What is fund formation/investment funds?

Post by UnfrozenCaveman » Mon May 17, 2021 5:08 pm

Anonymous User wrote:
Mon May 17, 2021 4:49 pm
Can anyone say more about lateralling from a generic PE fund formation group to a VC fund formation group?

Or from a generic PE fund formation group to an in-house role at a VC fund?

Is either a doable move to make?
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Re: What is fund formation/investment funds?

Post by Jk14 » Wed May 19, 2021 1:17 pm

Why is the funds considered the “easiest” to make partner in right now. I’ve heard this from a few places now. And is that a short term outlook or would it still serve an incoming first year to pick funds if they want partnership ?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Wed May 19, 2021 4:21 pm

Jk14 wrote:
Wed May 19, 2021 1:17 pm
Why is the funds considered the “easiest” to make partner in right now. I’ve heard this from a few places now. And is that a short term outlook or would it still serve an incoming first year to pick funds if they want partnership ?
Because it's a massively growing practice area, both in dollar values involved and in complexity, that was maybe a quarter of the headcount it has now a decade ago, so the partnerships at firms of all levels in the practice area are undersized compared to the amount of work there is. This is in contrast with most other corporate practice areas, which aren't really growing as much long-term even if they have short-term spurts of high levels of activity and were also much larger than funds to begin with 10 years ago so have a lot more existing partners.

The partnership prospects will certainly be less 8-10 years from now when a new first-year would be up for partner; a lot of people will have made partner in the interim. But it will still be a practice that can support more partners, I think, when compared to other corporate practice areas -- unless something significant changes in the regulatory or economic landscape that makes private funds less appealing.

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Re: What is fund formation/investment funds?

Post by Jk14 » Wed May 19, 2021 9:52 pm

Thank you very much! So it’s basically a wash for an incoming associate to choose funds versus another strong corporate group (in terms of partnership potential)?

Or would you still recommend taking it into consideration - assuming KE/Simpson/Deb level work

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Re: What is fund formation/investment funds?

Post by Anonymous User » Fri May 21, 2021 12:49 pm

Curious as to which firms are well regarded for hedge fund work specifically. Looking for anecdotal experience outside of what’s in chambers and partners. Are there any growing groups or groups poaching from the established players? Noted that FF is finally band 1 for hedge funds in chambers. Can anyone speak specifically to DPW and Ropes? Have heard PW is good but looking to avoid a specific partner there. Thanks in advance.

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Re: What is fund formation/investment funds?

Post by UnfrozenCaveman » Fri May 21, 2021 2:48 pm

You seem to have it right re: hedge funds.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Sun May 23, 2021 9:05 pm

Jk14 wrote:
Wed May 19, 2021 9:52 pm
Thank you very much! So it’s basically a wash for an incoming associate to choose funds versus another strong corporate group (in terms of partnership potential)?

Or would you still recommend taking it into consideration - assuming KE/Simpson/Deb level work
Same Anon. If pushed I would say funds is probably still better than M&A or whatever for making partner 10 years from now but honestly who knows. It's all very random that far out. I do feel much better positioned as a senior associate in one of the funds groups you mentioned for partnership than I would if I were an M&A or even capital markets (despite current frothiness there) associate but that's really as much as you can say -- and you might hate the work in funds but love the work in M&A (or vice versa).

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Re: What is fund formation/investment funds?

Post by Anonymous User » Mon Jun 07, 2021 11:38 am

Anonymous User wrote:
Fri May 21, 2021 12:49 pm
Curious as to which firms are well regarded for hedge fund work specifically. Looking for anecdotal experience outside of what’s in chambers and partners. Are there any growing groups or groups poaching from the established players? Noted that FF is finally band 1 for hedge funds in chambers. Can anyone speak specifically to DPW and Ropes? Have heard PW is good but looking to avoid a specific partner there. Thanks in advance.
I was an associate in IMG at Davis Polk. It's not a good place to go, whether for HFs or PE. They're small and shrinking, and compared to other groups, you won't get exposure to good clients or to interesting work. I'd always heard SRZ was ~~the~~ HF firm, but that's secondhand knowledge and I'm not sure how it compares to FF. If you're avoiding PW because of a specific reason why you personally do not like that partner, then go ahead. On the other hand, if it's based on general reputation, you may find that there is an asshole or two at every firm and that it's better to choose a firm you want and try to avoid the asshole rather than writing off a firm altogether.

For what it's worth, HFs in general are less exciting than PE for outside counsel. PE funds are limited duration so there are constantly new ones being raised, each of which involves a new set of documents (i.e. lots of different places for you to get experience drafting, negotiating and talking with the client). An established HF firm doesn't raise a new fund, it just takes new investors into its existing fund, so there's a lot less to do. You'll get questions about side letters and investment restrictions from time to time, but there are just fewer of them. And there is a lot more cost pressure on HFs compared to PE so outside counsel is used a lot less.

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Re: What is fund formation/investment funds?

Post by synergy » Thu Jun 10, 2021 1:56 am

Anonymous User wrote:
Mon Jun 07, 2021 11:38 am
Anonymous User wrote:
Fri May 21, 2021 12:49 pm
Curious as to which firms are well regarded for hedge fund work specifically. Looking for anecdotal experience outside of what’s in chambers and partners. Are there any growing groups or groups poaching from the established players? Noted that FF is finally band 1 for hedge funds in chambers. Can anyone speak specifically to DPW and Ropes? Have heard PW is good but looking to avoid a specific partner there. Thanks in advance.
I was an associate in IMG at Davis Polk. It's not a good place to go, whether for HFs or PE. They're small and shrinking, and compared to other groups, you won't get exposure to good clients or to interesting work. I'd always heard SRZ was ~~the~~ HF firm, but that's secondhand knowledge and I'm not sure how it compares to FF. If you're avoiding PW because of a specific reason why you personally do not like that partner, then go ahead. On the other hand, if it's based on general reputation, you may find that there is an asshole or two at every firm and that it's better to choose a firm you want and try to avoid the asshole rather than writing off a firm altogether.

For what it's worth, HFs in general are less exciting than PE for outside counsel. PE funds are limited duration so there are constantly new ones being raised, each of which involves a new set of documents (i.e. lots of different places for you to get experience drafting, negotiating and talking with the client). An established HF firm doesn't raise a new fund, it just takes new investors into its existing fund, so there's a lot less to do. You'll get questions about side letters and investment restrictions from time to time, but there are just fewer of them. And there is a lot more cost pressure on HFs compared to PE so outside counsel is used a lot less.
It sounds like you focused on hedge fund work? or at least did both hedge and PE? Would you mind describing the day to day of a hedge funds practice?

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Re: What is fund formation/investment funds?

Post by Lawblahhh » Tue Aug 10, 2021 11:42 am

Anonymous User wrote:
Mon Jun 07, 2021 11:38 am

I was an associate in IMG at Davis Polk. It's not a good place to go, whether for HFs or PE. They're small and shrinking, and compared to other groups, you won't get exposure to good clients or to interesting work. I'd always heard SRZ was ~~the~~ HF firm, but that's secondhand knowledge and I'm not sure how it compares to FF. If you're avoiding PW because of a specific reason why you personally do not like that partner, then go ahead. On the other hand, if it's based on general reputation, you may find that there is an asshole or two at every firm and that it's better to choose a firm you want and try to avoid the asshole rather than writing off a firm altogether.

For what it's worth, HFs in general are less exciting than PE for outside counsel. PE funds are limited duration so there are constantly new ones being raised, each of which involves a new set of documents (i.e. lots of different places for you to get experience drafting, negotiating and talking with the client). An established HF firm doesn't raise a new fund, it just takes new investors into its existing fund, so there's a lot less to do. You'll get questions about side letters and investment restrictions from time to time, but there are just fewer of them. And there is a lot more cost pressure on HFs compared to PE so outside counsel is used a lot less.
Can we DM? Was at a Deb/K&E/STB for Funds. Considering a switch to DPW.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Tue Oct 05, 2021 10:43 pm

Bumping this because I think it's a terrific companion thread to the current post on exit ops for funds. Does anyone have insight into the hours at non-Deb/K&E/STB funds groups? Can you get by around 2100-2200 hours at the non-elite shops or is everyone still burning the midnight oil with the rest of the corporate groups?

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Re: What is fund formation/investment funds?

Post by Anonymous User » Wed Oct 06, 2021 7:04 pm

Anonymous User wrote:
Tue Oct 05, 2021 10:43 pm
Bumping this because I think it's a terrific companion thread to the current post on exit ops for funds. Does anyone have insight into the hours at non-Deb/K&E/STB funds groups? Can you get by around 2100-2200 hours at the non-elite shops or is everyone still burning the midnight oil with the rest of the corporate groups?
Been above 2300 all year (at times well above)... non-elite, relatively small group (market paying firm). Prior to ITE, hours were much more reasonable.

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Re: What is fund formation/investment funds?

Post by Anonymous User » Mon Oct 11, 2021 2:46 pm

At a non-elite shop doing funds (highly ranked group) and you can certainly get by with 2000 hours or even under that. In this environment the elite firms are taking all the laterals so no chance you get fired even billing 1800-1900

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