Pay attention at the back. A man with a beard is going to talk about derivatives.
Stick with this. The man with a beard is Allen & Overy (A&O) US head Jeff Golden, a man well aware of his countercultural appearance. In fact, he is the one who brings it up. “When I went to Wall Street I had to apologise for two things – having a beard and also for my interest in international law,” he says.
No apologies necessary, Jeff. But he is right about one thing – he is not the typical US lawyer. For a start, he is weirdly serene; and second, he actually has some political purchase in his firm, unlike US lawyers at other City firms, many of whom are marginalised from the mainstream corporate and finance practices.
More of Golden’s political capital later. Instead, let us tarry awhile in the rip-roaring world of derivatives. For the last two years Golden, along with New York partner Dan Cunningham, has been acting as drafting counsel to the International Swaps and Derivatives Association (ISDA) on its 2002 master agreement, which is the cornerstone of a global derivatives market with an estimated value of $128 trillion (£79.2tr).
Such is Golden’s enthusiasm that for a whole hour I am actually rather interested in currency swaps and credit derivatives. Honestly. For several minutes he and I even have a discussion which verges on the lucid, on the tension between set-off and netting. However, it is fair to say that, since the interview, not only do I retain virtually nil knowledge of closing-out provisions, but most of my notes from that conversation read like something from Mrs Dalloway: “cocktail party… exposure… Czechoslovakia… new world… Moby Dick.”
It is obviously Golden’s mission to make derivatives… well, not fun exactly, but not too arid. His group even produces a crib sheet for its younger lawyers entitled ‘How To Succeed At A Derivatives Cocktail Party Without Really Trying’. I can exclusively reveal to you (and remember, this could be a social lifebelt here) that Golden’s top tip is that, if you are cornered by a derivatives trader, nod sagely and say: “It’s all down to netting.”
Golden is immensely proud of his team’s achievement on the new master agreement, which serves as a contractual template for all transactions in the derivatives market.
“I’ve been the lucky guy with a front row seat at something which is absolutely fascinating,” he enthuses. “This master agreement is a piece of paper which people philosophically will put as much confidence in as they do in a contract – it’s a social phenomenon.”
It was vital to update it, he says, because the market has changed massively within 10 years – not just in volume of trades, but complexity of products. “In 1992 it was currency swaps, interest rate swaps,” he explains. “We were only just reaching out to equity-linked derivatives and commodity-linked derivatives, where trades settle not just in cash.”
The other impetus was the series of market events at the end of the 1990s – Russia, Indonesia and the collapse of hedge fund Long-Term Capital Management (LTCM) – where a number of transactions needed to be closed out. The problem was that the 1992 agreement simply did not provide the right framework.
Hence ISDA’s initiative, two years in the making, to produce something that would underpin the way trading works now. Broadly speaking, market participants will now have more flexibility in determining the final value of transactions, although critics might contend that there is now more scope for disagreement – and possibly even litigation – between the parties.
Golden concedes that an element of subjectivity has been introduced. “There’s been a trading off of certainty in favour of flexibility, and to a certain degree sophistication,” he argues. “There are three pillars to this: good faith, commercially reasonable procedures and a commercially reasonable result.”
His zeal is not confined to derivatives. Golden has been instrumental in building up the US law group at A&O, which now numbers 217. Along with US lawyer Nancy Jacklin, who joined Clifford Chance‘s New York office as a partner back in 1994, Golden was a pioneer in opting for a UK law firm.
The difference was, Golden – a confirmed Anglophile – did not have to move back to New York. He had worked at Cravath Swaine & Moore’s London office for years and joined A&O’s capital markets practice in May 1994 at the behest of the then senior partner Bill Tudor John. The fact that A&O opted for a UK-based US lawyer, while Clifford Chance entered the lion’s den, rather underlines the two firms’ differing attitudes towards confrontation.
Since then Golden has become an influential figure within the firm, and one with the ear of senior partner Guy Beringer. It was Golden’s longtime friendship with Cravath partner Dan Cunningham that lured Cunningham to A&O in New York – an extraordinary coup by any standards. Within the firm he is a keen proponent of organic US growth rather than merger – much to the chagrin of certain sections of A&O, which would prefer to bolt on a US practice sooner rather than later.
“When you talk about a transatlantic merger,” says Golden, “even if we married up with one of the top US firms, we need good US lawyers here in London. And not just London, but also in Milan, Paris, Tokyo, Hong Kong, Singapore. Not many firms would fit that.”
After years in the undergrowth, Golden’s US team has suddenly emerged, blinking, into the light. It always comes as a surprise how very large the A&O US practice is – much of it centred in London. According to the firm’s own literature, it now has 75 US lawyers in London out of a total complement of 217 US lawyers worldwide, and Harvard is now the third-largest feeder university after Oxford and Cambridge. (US graduate recruitment has been a major focus for the firm, and for the moment it seems as if it is getting it right; Golden is particularly proud of the fact that A&O received a glowing write-up in US law student magazine JD Jungle.)
A large part of A&O’s US practice is securities-driven. As you might expect, it is skewed towards the debt side, but its biggest growth has been in equity deals. Last year it represented Aegon in connection with its e3.5bn (£2.2bn) US equity offering of 2002, and advised Citigroup and JPMorgan on Unilever’s $1bn (£618.5m) Securities and Exchange Commission (SEC)-registered offering.
Golden is quick to point out that it is not all about Rule 144A transactions. “We were more interested and had more support to build a more diversified practice,” he says. “It’s not just doing securities offerings, but we have the largest US law tax practice here with Steve Fiamma, and there’s David Frauman, formerly of Cadwalader Wickersham & Taft. It must make us the largest US insolvency practice [in the UK].”
It seems you can’t take the dream out of the American. Golden’s version of how the securities practice works at A&O sounds rather like the old ideal of the melting pot. “What’s been hugely important to our success is that our team has been integrated,” he says, rummaging in his maroon folder. “Look!”
He brandishes a floor plan – but goodness, it’s a pretty one. Lots of colourful flags. A bit like the UN, except without the fights. “We’ve tactically taken steps to ensure that integration happens,” he says. “It must be working on one level, because I know of at least six interjurisdictional romances.”
Love among the credit derivatives: now that really is a selling point.
Allen & Overy