For someone who claims he never wanted to be a lawyer, Jonathan Blake has carved out the sort of career that leaves little doubt he is in the right job.

Known by many as the ‘father of fund formation’, he was the first adviser elected into the British Venture Capital Association's 'Hall of Fame’, and is widely credited as having set the template for the private equity LP agreement in Europe; a model that has served private fund managers, as well as law and accounting firms for the best part of a century.

At the start of this year, Blake joined Herbert Smith Freehills as head of international private funds strategy after three years at O'Melveny and Myers, before which, Blake established and led the funds practice at SJ Berwin for nearly 35 years.

Despite this, Blake told Real Deals: “I was never one of those people who knew what I wanted to do from childhood. I never wanted to be a lawyer, in fact I tried to give it up a number of times. If anything, I wanted to be a scientist. But, it was a bringing together of my various ambitions to get involved in setting up SJ Berwin.” The rest, as they say, is history...

Now and then 

“My introduction to private equity began quite early on at SJ Berwin, although back then it was just called Venture Capital.” Blake said.

“In 1982 I got involved in a very early management buyout for an ailing division of a battery company. This was how private equity started off in weakness rather than in strength, which is what the early buyouts were like. This is the sort of work I was drawn to; working with ordinary people and ordinary businesses. Of course, private equity has come a long way since then.”

Indeed, the industry has since undergone a dramatic rebranding. “I don't think you could say that buyouts are mainly made up of companies doing badly anymore; they tend to be doing reasonably well in the first place. Private equity has become bigger and more prevalent. 

There is more liquidity and more opportunity than ever before to realise both investments in private companies and investments in funds, with private equity investment becoming seen as a separate asset class and LPs adopting a diversified asset class approach to investment.”

Blake said that a clear indicator of just how far the industry has come is the impressive growth of the secondaries market.

“Once a niche area, the secondaries market is quickly becoming a well-trodden path to generate more liquidity; initially to meet LPs liquidity requirements and portfolio management and now by GPs, with GP-led restructurings becoming increasingly prevalent, a strategy that was unheard of when private equity first started out.”

Fund formation 

Speaking on the current trends in fund formation, Blake said: “We were seeing a resurgence of first time funds although it is not clear whether this is continuing since Covid-19.

"There is also more polarisation between funds that do very well and others that are unable to hit maximum targets. While there has always been polarisation, it is becoming steadily more apparent and the Covid-19 virus will likely make it worse. Although this is not necessarily a bad thing as it allows strong funds to perform well.”

Perhaps most notably, the industry’s expansion has soared through fundraising. Mega-funds continue to dominate the market but there are fewer larger funds.

“The momentum that mega-funds have makes them more straightforward to raise than mid-sized funds. If investors have their eyes on a multi-billion fund and, at the same time, a smaller one, the investors are going to naturally pay more attention to the larger one. This makes it difficult for those mid-sized range funds to get air time with LP’s,” Blake said.

The emergence of more unconventional fund terms is another standout theme. “Longer term funds and longer investments are a big trend right now. They need to be held for a longer time to realise their full potential. The average life of a ten year fund is now 15 years.”

Blake said that terms and conditions are also becoming less standardised and there is more deviation from standards, particularly in key areas like distribution waterfalls, GP removal, key man protection, indemnification and carry clawback; a sign that the industry continues to evolve and expand.

A key role to play 

The dramatic upending of the Covid-19 crisis will have seismic impacts for private equity. But Blake said he is quietly optimistic that the strength of the asset class means it can withstand the global shutdown. In fact, in some ways the current situation marks a throwback to the 1980’s, in which the industry has found itself in a position to help businesses in distress. 

This, according to Blake, is what private equity is rooted in. 

With buyout firms worldwide pulling in a near record amount of capital during the first quarter of this year, private equity funds are ideally placed to help with some of the problems brought on by the pandemic.

Indeed, many firms have already set to work doing just this.

“Part of the attraction of law comes down to being in a position to construct new ideas that face any challenges that come our way. If anyone came to me and said they were bored in law I would tell them they were probably doing their job wrong,” Blake said.