Ben Pape, Macfarlanes

Ben Pape qualified into the investment management group at Macfarlanes in September 2019. Just months later he was lead associate on a fledgling fund being pulled together amid a pandemic and the Brexit transition.

KLAR was both a completely new business and a new client For Macfarlanes. As a fledgeling fund sponsor, it had the rare distinction of having the biggest debut fundraise for an EU private equity manager during the Covid-19 lockdown. In March 2021, its first fund, Klar Partners I, held a successful final closing at its hard cap of €600m from both EU and US institutions to invest in Nordic buyouts.

Pape, who joined Macfarlanes as a trainee solicitor in September 2017, has mainly acted for private fund managers on fundraisings across private equity, debt and real estate since then. “I have also assisted investors when reviewing and negotiating their investments into private funds,” he says. “On the fundraising side, I enjoy the buzz of leading up to and holding a closing – a lot of time and effort goes into co-ordinating investment from multiple investors at the same time, and it is hugely rewarding to see the end results that has for the client. There is also a good combination of technical aspects in structuring and establishing a fund and preparing key documents, and the more commercial side in negotiating terms with investors.”

The KLAR team came to Macfarlanes early on in their inception with a blank sheet of paper but firm ideas about what they wanted to build. The firm helped the fund principals work out not only the design for their new fund, but also their internal management arrangements, which involved pan-European employment, regulatory and tax issues. This was involved given the team’s prior relationships with other private equity groups, and then the twin challenges of Covid-19 and dealing with a pan-European fund structure as the realities of the post-Brexit rules took shape in 2020/2021.

“A combination of Brexit after-shocks and Covid-travel restrictions meant that the fundraising had to be flexible in terms of where and how marketing was conducted. We worked closely with the fund’s placement agent Evercore to ensure that the principals could be where they wanted and needed to be for key investors,” Pape explains.

“Any fundraising has its unique challenges to navigate, but what stood out for me on KLAR was the importance of the team dynamic and the single-mindedness of the principals. They had a strong vision of the sort of firm they wanted to build and the message they wanted to relay to investors. The team sung from one hymn sheet and was not afraid to be robust with investors when they felt something might encroach on their team dynamic and the culture that they wanted to build. Quite a lot of our work was not just on LP negotiations but also thinking about internal structures, tax planning and employment issues, which meant liaising across Macfarlanes with our specialist tax and employment teams.”

KLAR’s fundraise also had to contend with the practical and logistical challenges posed by Covid-19, and the legal challenges posed by the undefined fallout from Brexit. Covid-19 disrupted the timetable and forced the fundraise to react to events, the team could not get in front of investors (particularly US LPs) during 2020 and when attention was available, there was a very concentrated period in which to negotiate and close on that investor.

Pape says senior management and the firm’s IT department worked hard to ensure that the move to remote working was as seamless as possible and did not affect the team’s ability to meet the needs of clients. “One of the benefits was the greater flexibility in attending calls or virtual meetings when not constrained by location. The challenge was mainly logistical – for example ensuring in advance that signatories have access to a printer or can sign documents digitally so that closings can run smoothly,” Pape recalls.

“The pandemic and remote working demonstrated how our team was able to adapt to difficult circumstances. Regular team update calls and virtual socials meant that I never felt isolated from colleagues. The pandemic has also shown how people are understanding of different people’s circumstances, such as those who have had to balance looking after children while working at home. Communication is key, but it is clear that the flexibility and support is there to enable everyone to perform at their best.”

Macfarlanes approach had to be flexible, and pivot as needed to reflect where geographically, investors were suddenly easier to visit, and adapt to commercial pressures. To get the first close into the fund, KLAR agreed on a short timescale to simultaneously complete a co-investment for a key cornerstone investor, which impacted the fund structure in the run up to that first close.

The firm had to balance getting early momentum into the fund and not giving away too many terms early on. Given the fund principals were negotiating a fundraise for the first time, counsel had to be balanced, efficient and take in the whole picture, not just the terms for KLAR I but also the terms which would naturally flow from this fundraise and be adopted in KLAR’s successor funds.

“Most of this transaction took place during the Covid-19 pandemic. Given that this was a new team and a new relationship, much of our interaction was virtual and as the lead associate on the fundraising, I was responsible for a lot of direct client contact from a very early stage. It was exciting to see the business grow from a blank sheet of paper and progress to reach the fund’s hard cap of €600m. There were some challenging moments during the fundraising so it was hugely satisfying to help KLAR achieve such a great result,” Pape says.

“As a first time fundraise, this transaction was transformative for KLAR. It gave them a fixed pool of capital to work with at a unique moment for the markets. First time funds are always exciting to get done, but given the background to this transaction, it was a huge achievement for KLAR and very rewarding to be part of. Personally, I enjoyed the considerable amount of direct client contact and I look forward to maintaining and developing a long-lasting relationship with KLAR in the future. The KLAR fundraise was also a great opportunity to work on a matter from inception, and learning to think about the bigger picture (the subsequent fund raise and future development of the sponsor), not just the immediate transaction.”

Macfarlanes had to balance the deal requirements for KLAR as they were simultaneously looking for investments to make out of the fund. The firm was busy assisting on their initial acquisition and co-investment structuring, as well as advising on the facility agreements put in place by the fund and its lenders, as well as all aspects of their business setup and establishment, including employment issues for new team members, and tax compliance and internal reporting functions. This all required seamless co-operation across multiple internal practice groups, and with external local counsel where relevant.

Conscious of the December 2020 transition period deadline, the firm ensured the EU marketing schedule was accelerated so that the fund did not run into Brexit-related structuring issues.

The main measurable outcome to this deal was the final close of the fund, with a substantial body of high-quality institutional investors, and the creation of a new private equity fund sponsor which is internally set up to grow and thrive off the back of the fundraising. Macfarlanes continued to work closely with KLAR to help them embed their new investment processes and investor relations arrangements after having closed the fund, and helped them staff internal functions to support the chief operating officer and chief financial officer in that endeavour.

Reflecting on the period since this deal, Pape says: “The recent fundraising market has been very busy, and so my time has mostly been taken up with fundraisings for other closed-ended fund sponsors, across a number of asset types and sectors. We are also busy helping teams re-organise or enhance their internal incentive arrangements, as teams grow and develop internal talent.”