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Date
14 February 2014

Mishcon Thinks: The Rise of Private Capital

In this film Kevin McCarthy, Partner and Head of Mishcon's Private Equity Group, is in conversation with broadcaster Katie Derham on the rise of private capital.

Transcript

Mishcon Thinks: The Rise of Private Capital

Mishcon Thinks: Kevin McCarthy

Katie Derham

So Kevin McCarthy you are a partner in the private equity group at Mishcon de Reya and I hope that this is a good opportunity for us to talk a little bit about the way your world is changing at the moment and the way, well the way deals are being done.  Can you sort of shed a bit of light on how the landscape is changing?

Kevin McCarthy
Partner, Corporate

Sure it’s been a difficult time for the private equity industry in general over the last sort of four or five years or so.  There has been a distinct lack of debt in the market and I think that’s brought the market in certain areas to close to a standstill.  One of the things I would say though is that the world of business, a bit like the world of nature, hates a vacuum and so that space is and has been filled by other new entrants to the market and one of the interesting things we have seen is the increasing rise of private capital in the wider sense starting to play a role in the private equity sector.

Katie Derham

And so when you say private capital exactly what do you mean by that?

Kevin McCarthy
Partner, Corporate

What I mean is that private capital in the widest possible sense so not just private money although there is a significant amount of individual high net worth individuals bringing their money to London and making that felt within the London business arena.  But it’s private capital also in the sense of family offices, sovereign funds, privately owned funds.  All of these different sources of private capital coming to play in the private equity sector and each have a role to play.

Katie Derham

Have institutional deals fallen by the wayside completely do you think?

Kevin McCarthy
Partner, Corporate

No I don’t think they have, I think actually depending on which part of the private equity market you actually look at certain areas of that sector have actually been quite busy.    The top end of the market because it really thrives on debt has been much quieter.  There has not been the same amount of debt or the willingness on the part of banks to put debt into the market but if you move down into the mid-market and the lower mid-market actually there has been a large amount of activity and those deals have been done by institutions and in a sense the private capital part of that is a new entrant and adds a new angle to how that part of the market has been operating.

Katie Derham

How does it affect your work day-to-day?

Kevin McCarthy
Partner, Corporate

It affects my work because as a firm Mishcon de Reya actually is very focused on the private capital sector of the market so if you go back ten years ago or so there are firms who do institutional work, there are the firms who do private work and there was a definite line between the two but increasingly that line has become blurred and I think that space where private capital, private individuals and business where they meet is increasingly in vogue and in focus at the moment.  Private capital, private individuals have more value and have more money to spend and therefore they are competing against institutions in relation to some of those deals and so from a personal point of view acting for some of these family offices, some of these high net worth individuals they are doing transactions which are effectively private equity deals albeit you are acting for individuals and the corporate entities of these individuals in the context of private equity transactions.

Katie Derham

And what kind of deals are they wanting to do?  I mean are they very different from the kind of institutional deals you would have been doing?  Are the motivations different if you like?

Kevin McCarthy
Partner, Corporate

They can be.  They can be very similar.  You can have these deals which are motivated purely by the finances and the potential investment returns and private individuals and their entities are just as interested in that type of investment as are most institutional or more traditional institutions. 

Katie Derham

Is there a different sort of risk profile or…?

Kevin McCarthy
Partner, Corporate

What I would say there is an additional element and that sometimes a deal can make sense for a private individual or for a family office because it’s more of an emotional investment and they are not necessarily tied to the returns because the ultimate beneficiaries are they themselves rather than a body of shareholders who effectively look to see what returns have been made and therefore deals which might not make sense to an institution because it is more difficult to justify to the ultimate shareholder might actually make sense to an individual or to a family office because there’s another aspect to it, there’s more of an emotional pull or some other strategic reason as to why this is a good deal for us and so I think that brings an extra dynamic and an interesting dynamic to acting for the private side of the equation as opposed to the institutional side; which we also act for.

Katie Derham

You mentioned the different dynamic there.  It must make for quite an interesting relationship between legal advisor and private individual?

Kevin McCarthy
Partner, Corporate

It does.  I mean the relationship is still very much one of lawyer to advisor and therefore first and foremost we are lawyers and we give legal advice and that advice has to be right.  I think the interesting dynamic is that when acting for institutions you are very often acting with or working with people who know exactly what they are looking and they are looking for process and they are looking for execution as opposed to if you are acting for families and individuals when they say ‘what do you think?’, they actually mean what do you think?  They want your view on something possibly because they haven’t yet formed their own view and therefore it is more of a personal relationship.  You are dealing with the decision maker; you are not dealing with people who are instructed by others to make sure that the deal is executed.  You are dealing one-to-one with the ultimate decision makers and so that can actually act for or it can make for a very interesting dynamic between the lawyer and the client.

Katie Derham

And do you see the trends continuing?  This trend for more private capital?

Kevin McCarthy
Partner, Corporate

I do actually because I think London is such a honey pot of activity, there’s so much economic activity which is flowing through London and where you have that then you know, deals will be done, money will find a place to invest and I think I don’t see that stopping any time soon so you know, obviously I hope that’s the case but I haven’t seen anything which would indicate that that would be otherwise.

Katie Derham

Kevin McCarthy very good to talk to you, thank you very much indeed.

Kevin McCarthy
Partner, Corporate

Thank you.

Mishcon de Reya