Davis Polk partner Michael Hong was featured in a video by Investor Relations Network discussing his role as a fund formation lawyer.

When asked about the current relationship between LPs and GPs, Michael said, “It’s a buyers’ market really fueled by the fact that capital is scarce, and exits have been equally scarce.”

“It means that everything is kind of up for grabs from a terms perspective,” he continued. “I think provisions that may have been viewed as well settled in GP agreements or in side letters are on the table in a way that I haven’t seen … since the great financial crisis.”

Speaking about how he fits into the investor relations role, Michael noted, “I did better at fund formation when I view myself and modeled myself as an extension of the investor relations function. I think there was a time when if you were outside counsel, like me, the primary point of contact would be the general counsel or the general counsel equivalent. And that still is true to a certain extent, but in fact the constituency that I find myself interacting with a lot – and frankly have to keep happy in order to get the next assignment – is the client.”

He added, “I am fundamentally interacting and negotiating with my client’s client. So, if I don’t adopt the imperatives of the IR [investor relations] function and understand what is important to them and not important to the firm and the institution, I may not get the next assignment. I think that’s a bit of an evolution in what fund formation lawyers do today than it may have been done 10 years ago.”

Michael emphasized that it is important for a fund formation lawyer to take a step back and talk to the firm holistically. “And depending on that [conversation], you have to calibrate, not just your interactions with the investors and their counsel, but also calibrate your advice. There might be things on the table that you need to lean on your client: ‘You might need to be prepared to give up this term or that term.’”

Discussing the unique relationship between placement agents and outside counsel, he said, “Far too many agents and law firms alike view themselves are disparate service providers with different incentives and different motivations. I have really enjoyed developing relationships with placements agents because we have the same goal, and there are actually amazing opportunities to work behind the scenes together … to fundamentally deliver a cohesive product to the client.” 

 

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