Shouldering a varied workload comprising everything from deal negotiation to juggling relations with outside counsel and investment professionals, the private equity in-house lawyer needs a formidable array of skills to thrive in such a leanly-staffed, fast-moving environment.

Eighty delegates from some of the industry's best-known buy-out and venture capital houses met at the Landmark Hotel in London to debate issues relating to the role of in-house counsel for the first Legal Week Private Equity Forum.

The conference, which was run in association with the Private Equity Lawyers Forum (PELF), was chaired by Omega Fund Management general counsel Claire Wilkinson.

Kicking off the day's discussion, John Gripton, managing director of Capital Dynamics, addressed the mounting controversy over whether the buy-out bubble is about to burst.

While the number of funds being created may not have changed dramatically over the past five years, the size of deals and the activity levels of individual houses has exploded. Capital Dynamic drew on figures that show the number of private equity-backed buy-outs rose from 71 in 2000 to 2,250 last year.

In addition, the average deal doubled in size between 2005 and 2006 due to a few very large deals pushing up the figures.

Gripton argued that although the industry was approaching an historic peak in terms of debt level and deal valuations, this was sustainable, largely because capital has flowed to the most experienced houses with the best record.

He told delegates: "Previously, there were many inexperienced managers raising money who did not know how to invest it. The teams that are still around are mature and have proven themselves, making the market a more sustainable place."

Opening up the discussion, a panel made up of Omega's Wilkinson, Bridgepoint Capital head of legal and compliance Barry Lawson, TowerBrook general counsel Filippo Cardini, Erin Sarret of Access Capital Partners and Macfarlanes corporate partner Bridget Barker, asked what role general counsel should take on in raising funds.

Lawson said he saw his role as the buffer between investment professionals and the law. "My aim is to keep law and regulation as far away as possible from the investment professionals."

However, delegates agreed that corporate counsel are becoming more involved in fund-raising and related marketing.

"There are as many roles for general counsel in private equity as there are houses," commented Wilkinson. "It is such a diverse market."

The role of the in-house lawyer in deals

The director of legal services at 3i, David Dench, and Duke Street Capital's investment relations partner Buchan Scott led the discussion on what part corporate counsel should play in deals.

Both Scott and Dench said that they had little personal involvement in deals, and left fundraising to the investment professionals at their respective companies. When asked for a show of hands, it became evident that there was a wide disparity among the delegates in the room regarding the instruction and management of outside counsel. Only half of the delegates were involved in choosing outside counsel at all.

Scott said that although he did not have a great deal of influence in making investment decisions, he could step in and veto any deal he chose to on legal grounds.

Dench warned against intervening between investment professionals, although he added that it was important to retain an influence when it comes to instructing external lawyers. He described instructing outside counsel as a three-way process between the in-house lawyer, the investment professional and the adviser – even if the ultimate decision on who to instruct should lie with the general counsel.

Dench said: "I do not see my role as putting myself in the middle – we try to get advisers and investment professionals working together."

Dench also told delegates that growing levels of cross-border activity in private equity could make it difficult for general counsel to handle a lot of work in-house. Notably, Dench said the FTSE 100-listed 3i had in recent years slimmed down its in-house team to 14 lawyers in response to its international expansion, arguing that the company was unable to replicate its previous UK model globally.

While the amount of input in-house lawyers have on investment decisions looked to be negligible in large buy-out houses, other delegates from venture capital outfits argued that as often the sole in-house lawyer in their outfit, their role could be more involved.

Likewise, one corporate counsel at a venture capital firm said the cost savings of handling deal work in-house meant that it made financial sense for lawyers working on start-ups to handle substantial amounts of work in-house.

Less-developed markets were cited as a prime example of areas where it is useful for general counsel to take on more actual legal work, given the variable standards of drafting in some jurisdictions.

The changing role of private equity in-house counsel

One of the forum's breakout panel discussions focused on how the role of lawyers employed in private equity is changing. Often the only legal professional at a private equity house, delegates debated whether they would soon be welcoming other lawyers on board if in-house legal departments had to grow to handle increasing regulation.

One general counsel at a large UK house argued that given the rapid rate of expansion the industry has undergone in recent years, in-house teams were set for substantial growth. As the firms get larger and the scrutiny upon them increases, so will the amount of regulation focused on the industry and the number of lawyers needed to deal with it.

Sue Woodman, general counsel at Alchemy, chaired the session and asked members of the group whether they felt that forthcoming regulation, including the Markets in Financial Instruments Directive, is a result of the hostile media interest the industry has recently attracted.

"There has been a tangible increase in bureaucracy, although the benefits have not been noticeable," she said. "Brussels tends to impose blanket regulation without taking account of the differing dynamics of the businesses which it is trying to regulate."

She urged private equity general counsel to take the initiative with the media and make sure that the positive effects of private equity were not lost on the public simply through having a 'no comment' policy.

She added: "As with any industry, it has its ups and downs. Much of the media storm has come about from bigger houses doing deals which involve culturally significant household names – although in reality 80% of deals are of a value of less than £2m. There will have to be more accountability as the market falls further into the public eye, but this should be at the larger end of the market and regulation should not penalise smaller and medium-sized entities."

Woodman also said that the days of generalist lawyers at buy-out houses are numbered, a sentiment shared by a number of delegates from larger houses who admitted that they did not have all the requisite expertise at their fingers to handle a large number of deals in-house.

Many general counsel felt that the in-house role should not be seen as a replacement for outside counsel but as a negotiator.

"In-house counsel can bridge the language barrier between deal executives and lawyers," said Wilkinson. "We can make executives feel comfortable with legal jargon."

A second report on the Legal Week Private Equity Forum will be published next week.