‘Who Could Fill Their Shoes?’: The Future of Funds

The commercial legal industry is well known for having M&A stars, partners who close the biggest deals and act as a figurehead for their corporate departments. But this phenomenon is considerably amplified in the world of private equity funds.

Unlike other practice areas, a firm’s primary partner advising on the formation of private equity funds tends to enjoy a much higher status than other members of the same team.

“The profile of the group leader is so dominant compared to number two”, explains a partner of the London funds, “the vulnerability of the funds, unlike other practices, is that most of the practices of the funds tend to have a person named after the team. Those lawyers who got to this in the late 90s compared to anyone else in their firms, stand out.

A few of these big names in the UK include Jason Glover at Simpson Thacher & Bartlett, Geoffrey Kittredge at Debevoise & Plimpton, Stephen Robinson at Macfarlanes, Nigel van Zyl at Proskauer Rose, Michael Halford at Goodwin Procter, Mark Mifsud at Fried, Frank, Harris, Shriver & Jacobson and former partner of Clifford Chance Nigel Hatfield.

But there is a downside to this. It’s hard to see who, in a group “much less institutionalized than other firms,” ​​would want or could take the place of some of the best lawyers when they leave or retire. Below these market leaders who so often draw attention to themselves, there aren’t many household names.

A market player asked how much a replacement for Jason Glover trusts Simpson Thacher & Bartlett could ever be, and also highlighted Michael Halford’s strong performance at Goodwin Procter, while acknowledging that his team is well regarded. There is no indication that either partner is considering leaving or retiring, but the partners say the situation presents a long-term problem.

The Kirkland Effect

This problem is exacerbated by the effect that Kirkland & Ellis has had, according to several partners.

Kirkland’s plan is to “take number two of all number ones” so businesses are left with a significant void to fill, according to several London partners.

It doesn’t take much digging to follow the trend. Over the past three years, only a few of those Kirkland has poached from rivals include Edward Prestwich by MacfarlanesAmy Fox by Simpson Thacherand Raphael Bloch In Paris by Willkie Farr & Gallagher. Another rental included Andy Shore by Proskauer Rose who a London partner remarked was “already prepared to lead this team” one day, although van Zyl is still a long way from retirement.

While positive for Kirkland, this is more problematic for competing firms than in other practice areas, as the ability to hire top fund partners is severely limited due to the general reluctance of clients to switch. advise.

Recruiter Emanuele Cianci, internal director at Fox Rodney, said: “Fund lawyers are very difficult to move, especially the established ones, unless they move the whole team, because it is very difficult to move customers.”

That means hiring a big-name replacement probably isn’t an option, with the focus on the next generation.

The long succession plan

But this transfer can take a long time.

Ten years is the time it takes for a firm to prepare for the departure of a senior fund lawyer, according to a London partner. The head of department, who plans to retire in about fifteen years, has already begun to think about his own transition.

The reasoning lies in the fundraising cycle. For some customers, this can take around three to five years, and a junior partner needs to be onboarded into a project and go through a few such processes beforehand to make sure the customer knows and trusts them before the transfer.

“If you are sensible, these promising lawyers would work on a predecessor fund so that they are already visible to the client and have the right to receive work in the future,” commented another partner of the London fund.

For others, it takes less time, with some major fundraisers taking place every two years. Another partner from London noted that this means that around four or five years is sufficient integration time.

Glover is a prime example. He has worked on eight fundraisers for client EQT since 1999, which equates to one fundraiser every 2.75 years.

Take early action

Some companies have been aware of this problem for a long time and have taken steps to protect themselves accordingly.

One such company is Cleary Gottlieb Steen & Hamilton. “Clary missed out 10 years ago to focus on Asia instead, but now he has a market-leading practice [in the U.K.] and throws his hat in the ring with new recruits, ”said a London-based fund lawyer.

The firm has hired Kirkland & Ellis partner Sophie Smith already this year, and according to a person familiar with the situation, the firm aims to continue to grow its ranks at both the partner and associate level over the next few years. Cleary also introduced an all-new special secondary team.

Many eyes will be on Fried Frank to see how the company is handling the changes it has been going through recently. Heavy fund partner Mark Mifsud entered a management role in 2017 and although he is still very involved in transactional work according to an partner, his rivals said he was “doing less”, and since announced that he would be take a six-month sabbatical.

Successors of successors

The other challenge facing companies competing for funding is that the industry continues to grow so rapidly.

Private equity funds are currently a $10 trillion industry that Goldman Sachs predicts will grow at least 50% to $15 trillion in less than five years, or even 300% to $30 trillion. dollars. However, “there are not enough lawyers’ funds on earth” to meet such a demand, according to some partners.

“The main problem for fund teams is associates – there just aren’t enough of them,” Cianci added.

To get ahead, some firms are already putting plans in place for their more junior lawyers.

According to people with knowledge of the situations, Kirkland currently welcomes between 14 and 18 newly qualified lawyers each year to its UK funds team. and Simpson Thacher hired a one-year PQE and an NQ to its fund team last week.

Meanwhile, Proskauer, although currently without fund interns, has introduced paralegals into his program who will soon transfer to a fund seat in hopes of wanting to qualify in practice.

A British lawyer commented: “Training is finally catching up, but the gap is really going to widen.”