Law Firms - Onshore/Offshore Overview

   In June a partner with Chicago-based law firm Sidley Austin testified before the Senate Judiciary Committee on the subject of hedge funds and short selling. Earlier in the year another Sidley Austin lawyer was in a New York bankruptcy court on behalf of his client, Rogers Raw Materials Fund, fighting to extract $362 million in unsecured assets trapped as a result of the collapse of futures brokerage Refco. This summer partners at San Francisco law firm Shartsis Friese penned letters to the U.S. Securities and Exchange Commission asking the agency to clarify its position on hedge fund regulation, after the U.S. Court of Appeals for the District of Columbia Circuit overturned hedge fund registration.

   The work of a hedge fund attorney has changed dramatically during the past two decades. John Broadhurst, who joined Shartsis Friese in 1978 and helped set up its hedge fund practice, says in the early days legal advice was mostly limited to fund formation. Today, he estimates that only 15 percent of his firm’s business involves startups.

   “As the industry has grown and managers have expanded into new strategies, the legal services they need have become more labor-intensive,” says Broadhurst. Michael Schmidtberger, a partner with Sidley Austin, agrees. “We do our share of start-ups, but a lot of what we do is related to the day-to-day operations of hedge funds,” he says.

   Sidley Austin and Shartsis Friese are first and second, respectively, among onshore law firms in this year’s Alpha Awards™ ranking of the top hedge fund service providers. They edge out last year’s top overall law firm, Seward & Kissel, in what was the closest voting among all the categories polled. No. 3 Seward & Kissel, which is renowned for having helped Alfred Winslow Jones set up the first hedge fund partnership, in 1949, is probably second only to No. 8 Schulte Roth & Zabel in terms of the number of hedge fund clients it serves.

   Top-ranked Sidley Austin takes a broad approach to advising hedge funds. Since its 2001 merger with New York– based Brown & Wood, Sidley Austin has had a large public fund practice. The firm’s 70-lawyer investment services group works with mutual funds, commodity trading advisers, real estate investment trusts and private equity firms, in addition to hedge funds.

   Sidley Austin receives outstanding marks from clients when it comes to regulatory and compliance issues, enabling the firm to edge out Shartsis Friese for the overall prize despite the latter’s No. 1 finish in client service, document preparation and hedge fund expertise.

   New York–based partner Schmidtberger, who is co-head of Sidley Austin’s hedge fund practice with William Kerr in Chicago, says his firm has been actively keeping clients up to date on SEC registration. “The biggest factor influencing the hedge fund business during the past 18 months has been the SEC registration rule,” he says. Like many law firms, Sidley Austin helped clients meet the February 2006 deadline for SEC registration and, now that the rule has been overturned, is advising them on whether to stay registered. “I think a fair number of hedge fund advisers will elect to remain registered to be more attractive to institutional investors,” says Schmidtberger.

   No. 2 Shartsis Friese is one of several small law firms that stand out for their hedge fund business. Despite having just 53 lawyers, including 13 in its hedge fund practice, Shartsis Friese is the West Coast’s equivalent of market share leaders Seward & Kissel and Schulte Roth in the East, representing more than half the hedge funds in California, estimates partner Broadhurst. He says smaller shops like his were willing to work with hedge funds early, when big firms ignored them because they didn’t generate enough fees.