Cheyne Capital's general counsel Jeff Bronheim on picking an external lawyer

Cheyne Capital's general counsel Jeff Bronheim on picking an external lawyer

When choosing an external lawyer a management company needs to take into account a number of factors such as cost, experience and responsiveness. It also needs to decide which of these has the most weight.

Law firms might be needed in other jurisdictions depending on where the fund is planning to trade or market itself. In the main centres on and offshore, hedge fund managers and general counsel say there are really only a handful of established practices with the depth of experience required for the job. Cheyne Capital's general counsel Jeff Bronheim points out that in London the two major players are Simmons & Simmons and Dechert. A company is likely to pick one or the other for its first fund and stick with that firm for the rest of its portfolio. In New York companies have more firms to choose from. Key players include Schulte Roth & Zabel and Seward & Kissel but there is a wider range of other options. Offshore companies also tend to have established relationships with one or other of the major international law firms. Three of the most prominent are Maples and Calder, Walkers and Appleby. These are mentioned by several management companies in relation to Cayman Islands funds and elsewhere, thanks to the increasing tendency for these firms to broaden their international reach.

Hedge funds are, however, far from the stage where they might be considering the selection processes of large corporates. Cheyne's Bronheim does not think the legal panel approach would work in a hedge fund context. "If I'm spending 1 million I'll never be a huge client for any of these firms," he points out. "The whole point of hedge funds now as ever is we're not bureaucratic. That's consistent with our overall business philosophy." Even the largest investment houses that are more institutional in their mindsets than small operations have not yet reached the panel stage.

There are tools available for potential clients to help pick lawyers. A number of publishing companies produce guides aimed at ranking firms and individual partners in different jurisdictions, cities and practice areas. Some people suggest these volumes are a good starting point for a newcomer to the industry as they give a suggestion as to what others may think. However, everyone agrees there is no substitute for getting out and talking to people. As to costs, at Cheyne, Bronheim agrees, seeing more focus on efficient agreements. He says he is "not a big fan" of fixed price deals as too often a firm can come back and argue that the agreed price came in too low. Instead, Bronheim prefers to negotiate more creative discounts between the firm and the client.

Nevertheless, that does not stop law firms from trying to get in on the act by pitching themselves as hedge fund practices. Bronheim believes newcomers to the market should focus on one of the development areas such as regulation instead of attempting to compete with the established "start-up" practices like Simmons or Dechert. He notes that the dominance of such players in the US and UK is likely to be perpetuated by a revolving door that sees associates from the big hedge fund practices go in-house as general counsel and then hire their former firms as external advisors.

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