The commercial legal industry is well known for having M&A stars—partners who pull in the biggest deals and act as a figurehead to their corporate departments. But this phenomenon is significantly amplified in the world of private equity funds.
Unlike in other practice areas, a firm’s top partner advising on private equity fund formation tends to enjoy a status that is elevated well beyond others in the same team.
“The profile of the head of group is so dominant compared to the number two”, explained one London funds partner, “the vulnerability of funds, unlike other practices, is that most funds practices tend to have one person that is the name of the team. Those lawyers that came to this in the late 90’s compared to anyone else at their firms, stand out.”
Just some of these top names in the U.K. 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 Clifford Chance partner Nigel Hatfield.
But there is a downside to this. It is difficult to see who, in a group that is “far less institutionalised than other practices”, would or could step into the shoes of some of the top lawyers when they leave or retire. Below those market leaders who so often have the attention cast on them, there are not many well-known names.
One market participant questioned how well trusted a replacement to Jason Glover at Simpson Thacher & Bartlett could ever be, and also pointed to Michael Halford’s strong performance at Goodwin Procter, while also acknowledging its team is well regarded. There is no suggestion any of these partners are looking to leave or retire but partners say the situation presents a long-term issue.
The Kirkland Effect
This problem is exacerbated by the effect Kirkland & Ellis has had, several partners say.
Kirkland’s plan is to “take the number twos from all the number ones” so firms are left with a significant gap to fill, according to several London partners.
It does not take a lot of digging to track the trend. In the last three years, just a few of those Kirkland has poached from rivals include Edward Prestwich from Macfarlanes, Amy Fox from Simpson Thacher, and Raphael Bloch in Paris from Willkie Farr & Gallagher. Another hire included Andy Shore from Proskauer Rose who one London partner remarked was “already being groomed to lead that team” one day, although van Zyl is still a long way off retirement.
While positive for Kirkland, this is more problematic for rival firms than it would be in other practice areas as the ability to hire away top funds partners is very limited due to clients’ general reluctance to change advisers.
Recruiter Emanuele Cianci, director of in-house at Fox Rodney, said: “Funds lawyers are very difficult to move, particularly the established ones unless they move the entire team, because it is very difficult to move clients.”
This means hiring in a top name as a replacement is probably not an option, putting all the focus on the next generation.
The Long Succession Plan
But that handover can take a long time.
Ten years is the timeframe that needs to be implemented for a firm to prepare for a senior funds lawyer departure, according to one London partner. The department head, who plans to retire in around 15 years, has already started to think about their own transition.
The reasoning lies in the fundraising cycle. For some clients, this can take around three to five years, and a junior partner needs to be embedded into a project and go through a couple of such processes ahead of time to ensure the client knows and trusts them prior to handover.
“If you’re sensible you would have those up and coming lawyers working on a predecessor fund so they would have been visible to the client already and earned the right to receive work in the future”, commented another London funds partner.
For others less lead time is needed, with some large fundraisings occurring every couple of years. Another London partner noted this means around four or five years is a sufficient embed time.
A prime example of this is Glover, who has worked on eight fundraisings for client EQT since 1999, equating to a fundraising every 2.75 years.
Taking Early Action
Some firms have long been aware of this issue and have been taking steps to protect themselves accordingly.
One such firm is Cleary Gottlieb Steen & Hamilton. “Cleary missed out 10 years ago to instead focus on Asia, but now it’s got a market leading practice [in the U.K.] and is throwing its hat in the ring with new hires”, said one London-based funds lawyer.
The firm hired Kirkland & Ellis partner Sophie Smith already this year, and according to someone with knowledge of the situation, the firm aims to continue to grow its ranks both at partner and associate level over the next few years. Cleary has also established a completely new special secondaries team.
Many eyes will be Fried Frank to see how the firm deals with changes it has seen recently. Heavyweight funds partner Mark Mifsud stepped into a management role in 2017 and although still involved quite heavily in transactional work according to one partner, rivals said he has been “doing less”, and has since announced he will be taking a six-month sabbatical.
Successors Of The Successors
The other challenge facing firms competing for funds work is the fact that the industry continues to grow so quickly.
Private equity funds is currently a $10 trillion industry that Goldman Sachs predicts will be up at least 50% to $15 trillion in less than five years or possibly up 300% to $30 trillion. However, “there are not enough funds lawyers on earth” to keep up with such a demand, according to some partners.
“The main issue for funds teams is associates – there just aren’t enough”, added Cianci.
To get ahead of the curve some firms are already putting plans in place for their most junior lawyers.
According to individuals with knowledge of the situations, Kirkland currently takes between 14 and 18 newly-qualified lawyers each year into its funds team in the U.K. and Simpson Thacher hired a one-year PQE and an NQ to its funds team just last week.
Meanwhile Proskauer, although currently without funds trainees, has introduced paralegals in its programme who will be rotating into a funds seat shortly with the hope of wanting to qualify into the practice.
One U.K. lawyer commented: “The training is catching up now, finally, but really the gap is going to hit.”