John Koeppel of Nixon Peabody: Emerging Markets are Hot, Emerging Managers are Cold

Law firm Nixon Peabody today brought some fresh blood into a leadership role in its investment funds practice. John Koeppel has been appointed from within the company to lead the group, succeeding Charley Jacobs, who remains in the firm’s fund formation group and continues to be involved in developing the firm’s Paris office. I spoke with Koeppel briefly about what’s keeping his group busy in a barren fundraising landscape.

What is keeping you busiest these days? I can’t imagine it’s fundraising. Or new fund formation for that matter.

We’re still counseling clients on timing for fundraising, and dealing with day-to-day regulatory things. A number of clients are active in the secondary market. We have a few looking to exit investments, and we have a few looking to grow their portfolios, and a few are looking to come out of their investments in early 2010, so we’re giving them the lead time to take to get out of those.

When you have clients looking to get active in private equity, do you tell them to first look on the secondary market?

It’s mostly clients on the buy side who are already active in private equity and want to be more exposed to a particular fund. They become aware of an opportunity where a particular LP wants to exit, and if they like the fund, even if the short term performance is down a bit, they see it as a good time to invest at a discount. We don’t see clients going cold into the secondary market. Sometimes it’s adding a new fund, but more often than not, we see them expanding their existing holdings, when they like the fund, like the mgmt team, and for some reason a family office is exiting so they want to double down.

What’s the most attractive kind of fund for LPs right now?

Well obviously, the mega-buyouts are a little cool right now, but we still see interest in distressed investments, cleantech, and in different pockets for top quartile managers in venture and middle market buyouts. We still see some interest there, as well as in emerging markets. We’re expanding our presence in China with a new office in Shanghai. Emerging markets is where a lot of activity is right now.

How is all of the regulation, both proposed and imminent, affecting your clients?

A number of PE players and clients are tracking carried interest legislation as well as the proposals in Congress about the SEC and additional PE sponsors having to register as investment advisors. Emerging firms in particular are tracking that closely. Given a few of the bad apples, the overall trend in PE is one to be a little bit more cautious in making sure the funds are doing the proper things. A number of our clients are watching Congress closely. When some of these pronouncements came out, people thought they were too aggressive; now as they are being refined they seem to be more palatable.

Do you closely watch Congress?

We have a government relations lobby practice and monitor that on behalf of a number of our clients. Our GPs and and LPs want to be sure they think their voice is being heard.

What are preparing for, human resources-wise, in the next year?

We’re hopeful, and based on some of the early signals we’re seeing from our clients, 2010 should be better than 2009. It’s still going to be kind of a fairly rough year for some of the emerging managers to gain traction.

Will emerging managers be able to raise funds? What will happen to those that can’t?

It’s going to vary. Obviously not every group out there trying to fundraise for the first time is going to succeed and no one would expect that. The ones with a strong track record they can rely on, or an anchor LP, a strong sponsor, and maybe they they lower their initial closing aspirations a little bit, I see a few of them breaking away from the pack. From the perspective of an emerging manager, you need one or more differentiating factors to help you stand out from the pack. If you’re just a generic emerging manager, those are the groups that are going to fail.