Partners Investing in PE Funds is Widespread, Investigation Finds

An investigation has revealed that many of the largest U.S.-based law firms operate discreet, in-house investment managers to facilitate partner investments in private equity funds. Firms including Sidley Austin, Davis Polk, and Skadden Arps are reportedly using these internal structures to allow their partners to gain direct exposure to the private equity sector. This practice highlights the deepening financial ties between top-tier legal advisors and the private equity industry, even as firms remain reluctant to discuss these arrangements publicly.

A Law.com investigation has uncovered a widespread but highly discreet practice among elite U.S. law firms of operating internal investment managers. These entities are designed to allow law firm partners to invest their own capital directly into private equity funds. Among the prominent firms identified as maintaining such internal funds are Sidley Austin, Davis Polk & Wardwell, Simpson Thacher & Bartlett, Ropes & Gray, and Skadden Arps Slate Meagher & Flom. Despite the prevalence of these investment vehicles, the firms involved have declined to speak publicly about the operations or the scale of these in-house managers, which allow for a swathe of the largest U.S.-based firms to participate in the private equity market.

The existence of these internal investment arms underscores the significant intersection between the legal profession and the private equity market. By establishing these managers, law firms provide their partners with a streamlined mechanism to participate in the high-yield opportunities typically found within the private equity asset class. This trend comes at a time when the legal industry is increasingly exploring various forms of engagement with private capital, including the use of separate service companies to navigate ownership restrictions and the potential for litigation funders like Burford Capital to take equity stakes in firms. The investigation suggests that these discreet funds are a standard, if quiet, component of the financial strategy for many Am Law 100 leaders.

Beyond the U.S., the relationship between private equity and the legal sector is evolving through regulatory shifts and significant deal activity. For instance, the Dutch Bar Association is currently considering lifting restrictions that require law firms to be owned exclusively by bar-registered lawyers, a move that could mirror models in the U.K., Spain, and Arizona and open the door for direct private equity investment in law firms. Meanwhile, the demand for private equity legal expertise remains robust, as evidenced by EQT’s recent engagement of firms like Morrison Foerster and White & Case for its dealings with Innolux subsidiary CarUX Holding. This global interest is further reflected in the expansion of private equity practices in hubs like London, where new practices are launching to capture shifting deal dynamics and increased collaborations across jurisdictions.