How Pa.'s Investment Management Practice Shrank
Six years after bringing an investment management practice to Philadelphia-based Montgomery McCracken Walker & Rhoads, partner Laura Anne Corsell and of counsel Don E. Felice have left to join Newark-based McCarter & English's Philadelphia office.
Those six years have seen Philadelphia's investment management practice change considerably.
In 2007, Stradley Ronon Stevens & Young, Drinker Biddle & Reath, Ballard Spahr, Pepper Hamilton and Wolf Block Schorr & Solis-Cohen all had strong investment management practices—sometimes called "40 Act" practices after the Investment Company Act of 1940—in Philadelphia.
But Ballard Spahr lost William H. Rheiner, the partner-in-charge of its investment management group for more than 20 years, along with partners E. Carolan Berkley and John N. Ake, of counsel Lisa M. King and associate Matthew R. DiClemente, to Stradley Ronon in 2008.
The following year, Wolf Block imploded.
Several of the other Pennsylvania firms still active in investment management, such as Morgan, Lewis & Bockius, Dechert and K&L Gates, have the bulk of their practices based outside the city, primarily in Washington, D.C.
Today, Stradley Ronon, with 50 investment management lawyers, most of whom, including 17 partners, are based in Philadelphia, has by far the largest practice presence in the city.
Drinker Biddle has the second largest, with eight partners and another eight associates, counsel and senior attorneys based in Philadelphia, but the rest of the firm's nearly 30-lawyer practice is spread out across its Chicago and Los Angeles offices.
Pepper Hamilton, meanwhile, has 12 lawyers total in its investment management practice, with four partners in Philadelphia and the others in Washington, D.C., and Wilmington.
In addition, Montgomery McCracken, which began building its investment management practice after Corsell and Felice joined, still has two attorneys in the practice in Philadelphia and another four in its New York office.
Montgomery McCracken Chairman Richard L. Scheff said that while he wishes Corsell and Felice well at McCarter & English, the investment management practice continues to be one "we're looking to grow and are growing."
"I love where we stand in the investment management world, I really do," Scheff said, explaining that the firm's practice services middle-market clients in Philadelphia, New York and Princeton.
Scheff did note that there are very few other law firms in Philadelphia that do investment management work.
Recruiter Frank Michael D'Amore, who writes a regular column for The Legal, described investment management work as "high-rate" and "very profitable" but said few firms in Philadelphia have been willing to dedicate themselves to the practice.
"It's regulated, highly particularized work," D'Amore said. "Firms are very careful not to dabble in it because you really have to know what you're doing. As a result, you've got to really jump in and make an investment or you tend to refer the work away."
"The potential regulatory impact of giving somebody bad advice is significant," he said.
D'Amore said it's a "long, tough slog" for firms looking to make a name for themselves in the investment management space without acquiring a large group of lawyers or a boutique firm that does that type of work.
"The top 10 firms in investment management [nationwide] are either really big or have a significant number of people or a deep bench of clients and have been in it for awhile," D'Amore said.
Michael O'Hare, a partner in Stradley Ronon's investment management practice, said his firm competes for investment management work on a national level with the Washington-based practices of Dechert, K&L Gates, Bingham McCutchen and Goodwin Procter.
So, can a firm like McCarter & English, which has nine lawyers in its firmwide investment management practice but only three in its Philadelphia office, establish an investment management presence in Philadelphia?
Howard Kailes, who leads the firm's corporate, securities and financial institutions practice, said it would be wrong to assume that any one firm has a stranglehold on the investment management practice in the city.
"No firm is going to establish a monopoly in that area as much as they think they'd like to," Kailes said.
Plus, Kailes said, McCarter & English is not necessarily looking to compete with the largest firms for investment management work.
"We have all the multidisciplinary expertise of a corporate law firm," Kailes said. "On the other hand, we don't hold ourselves out as a Wall Street-type law firm; we're a middle-market law firm."
And while Southeastern Pennsylvania is home to several major investment management companies, including the Vanguard Group, Delaware Investments, Hirtle Callaghan and SEI Investments, D'Amore said the location of an investment management practice is no longer as important as it once was because technology has made it easier than ever for lawyers to have a national practice.
"I think investment management is one of those practices that's almost by definition national," Corsell said.
If the competition and geographic scope of the investment management practice has changed over the past six years, the nature of the work has also shifted during that time, attorneys told The Legal.
O'Hare said the recession has spurred more investment management companies to create new products and utilize alternative investment strategies designed to protect investors in the event of another downturn.
In addition, O'Hare said, the U.S. Securities and Exchange Commission has stepped up enforcement efforts in response to recent financial scandals like the Bernie Madoff Ponzi scheme.
That increased regulatory presence has led to greater demand for lawyers well versed in constantly evolving investment management law, Corsell added.
According to Corsell, there's room in the investment management practice "for anybody who can look at new regulations, digest them and communicate them to clients."