London’s Junior Lawyers Are Ditching Public Markets for Private Equity

Ben Thomson, LawFuel contributing editor

The London legal scene continues to change as younger lawyers are increasingly moving towards private equity roles, stimulated by big money and the impact of US law firms in London.

The change for London lawyers also reflects broader economic trends and presents both challenges and opportunities for Magic Circle firms in terms of recruitment efforts and the overall changes to the law recruitment dynamics in London.

The Rise of Private Equity in London’s Legal Scene

Junior lawyers at Magic Circle law firms are checking out the roles in private equity work, particularly with trainees and newly qualified lawyers keen to join the burgeoning and profitable private equity market.

The Financial Times reports that there has been a marked preference among this cohort for the private equity work.

The factors driving the move according to the FT report has been the increase in private capital, a decline in UK stock exchange listings and major departures from the large companies that has had an impact on both law recruitment and an increase in recruitment efforts from private equity teams.

• Newly qualified associates are showing a stronger preference for private equity roles compared to traditional equity capital markets (ECM) positions.
• And the US law firms, which have had such a dramatic effect upon the London legal market, generally also have a strong private equity focus that is influencing junior associates’ career choices for younger lawyers in particular.

Implications for the Legal Sector

The shift towards private equity is causing a gradual erosion of ECM expertise in the legal sector. ECM activity in the UK has fallen 56 percent in the last decade.

The trend is one that could have long-term implications for the industry’s ability to handle public market transactions.

The legal market is adapting to these changes with many of the US-based law firms expanding in the UK but also leveraging their relationships with major private equity houses.

The increase in private capital in the UK market has intensified competition for legal talent with partner poaching a major threat to many law firms.

The changing business dynamics mean that many firms are considering alternative ownership structures and the mid-market segment is expected to see more larger groupings develop to provide firms with the necessary legal muscle flexing to secure private equity and capital markets work.

• US-founded firms like Kirkland & Ellis and Paul, Weiss have expanded in the UK, leveraging their relationships with major private equity houses.
• There has been a surge in partner hires, with a record 510 partner moves in London last year, and 265 in just the first six months of 2024.
• Wall Street law firms are increasingly focused on taking market share in London, particularly in practices such as finance and private equity, which has a major effect upon the Magic Circle firms and recruitment efforts.

Future Outlook

Private equity firms have shown growing interest in the legal sector, viewing it as a new frontier with attractive profit margins. This interest has seen the acquisition of major law firms by private equity investors, such as Inflexion Private Equity Partners purchasing global law firm DWF.

• There has also been increase in private equity-backed law firms expanding through acquisitions, like Lawfront Holdings and MAPD Group.

While the current trend favors private equity, some industry experts suggest that this could change as private equity firms begin to offload their investments into public markets.