Weil’s fall and why the PE legal boom may be nearing the top

Let’s be clear: the Big Law lateral merry-go-round that may have reached terminal velocity with Weil’s collapse last week is driven by PE.

Almost every big-money lateral move of recent years has involved lawyers whose work is driven by private equity – on the deal, on the fund or, as with the boom in liability management, on rescuing sponsor-owned companies from their debts. The fees they can generate are the rocket fuel that has sent partner pay into orbit.

Only a handful of firms can now realistically compete with the packages a select group of US firms will offer top PE talent. That group shows no sign of having sated its hunger for the revenue PE rainmakers bring and is locked in a pay race within its own ranks.

But what if this is an unsustainable bubble – one that threatens widespread instability when it bursts – and Weil is the canary in the coalmine?

Weil went under partly because it could not keep pace with what its rivals were paying. Arms races claim the most stretched first – and they rarely stop at one. When a partner can move for a reported $80 million guaranteed over three years, as Josh Feltman did from Wachtell to Kirkland in April, you have to ask whether we are getting close to the top for a fee-based business like law.

Arms races claim the most stretched first – and they rarely stop at one.

The winners in the current talent war will dismiss this as wishful thinking by those who can’t compete.

They will point out that private capital is still growing, that continuation funds and private credit throw off legal work of their own, and that liability management thrives when times are hard.

All true. But none of it changes who pays the bills – or how much more closely they are now reading them. People have been saying this for years, the sceptics will argue. Again true. A good thing remains a good thing – until it isn’t.

All the Sturm und Drang around partner moves and now Weil’s collapse has the hallmarks of a toppy market.

No one is suggesting private equity lawyers will become paupers overnight. Far from it. But for those who care to look, signs suggest we may be reaching Peak PE Partner. The early signs are easy to dismiss as noise. Increasingly, though, they suggest a pattern.

An industry under pressure

Start with private equity itself, which is going through a rough patch. As the Financial Times recently pointed out, returns are lagging the stock market, companies are being held longer, and a $1.3 trillion pile of unspent capital is struggling to find a home.

Some of this is cyclical; some is simply the end of cheap money. More important, as the FT puts it, “the industry has grown hugely, and is adjusting to greater institutionalisation, more competition and the law of large numbers”.

This adjustment is putting increasing pressure on fees as big investors, for example, gain leverage over PE managers to provide more fee-free co-investment opportunities.

Other people’s money

Legal fees are typically passed through as deal costs to the big investors whose money PE managers invest. So, the people choosing the lawyers are not the people paying them. There is nothing wrong with that in principle, but it weakens the incentive to control legal spend – and that shows up in the gigantic fees and the partner pay they fund.

The people paying have noticed. In May, the Institutional Limited Partners Association, whose members include the pension funds and sovereign wealth funds that are private equity’s ultimate paymasters, published guidance attacking “spiralling” fund formation costs.

It wants the organisational expenses investors bear capped at the lower of 5 basis points of a fund’s target size or $10 million, anything above that split 50-50 with the manager, and legal work on funds above $1 billion put out to competitive tender.

Without naming it, ILPA pointed to a law firm with a leading funds practice that had become the first to pass $10 billion in revenue. It did not need to. That is a straw in the wind, and it is blowing in one direction.

Thinking like an institution

Add that pressure to a tough year for the listed behemoths that dominate the industry – Blackstone, Apollo and KKR – and they are likely, increasingly, to behave like institutions in the way they buy legal services.

Think panels, competitive tenders and freebies. That’s what institutions do. Some already have. This summer EQT, the Swedish group that ranks among the world’s largest private equity firms, formalised a tiered legal panel, reportedly awarding “platinum” status to Ropes & Gray, Simpson Thacher, Clifford Chance and Freshfields.

When the client feels the squeeze, everyone gets squeezed, no matter how strong the relationship. And heaven forbid investors should ever start to think their lawyers earn more than they do.

When the client feels the squeeze, everyone gets squeezed, no matter how strong the relationship.

Yes, personal relationships will remain pivotal for as long as dealmakers stay dominant inside their firms. Individual partners at PE houses still enjoy real autonomy in choosing their lawyers, and they defend it fiercely, knowing how tight the circle is that originates and executes private deals.

But institutionalisation slowly erodes their power to insist on a favourite lawyer. And relationships spread across a firm, rather than being channelled through one person, eventually come to belong more to the firm than to any one partner.

Many PE houses still send most of their deal work to a single firm. Forty years ago, the big banks did too. They stopped long ago, because an institution sees value in having a range of firms to choose between – and to keep them honest.

The shrinking island

Almost all legal work becomes commoditised over time. High-end M&A may be an exception, but fund formation and lower-stakes portfolio work probably aren't.

Last week Latham announced a tie-up with Harvey to build AI tools for fund formation. Norm Ai and its affiliated firm, Norm Law, are developing AI-native legal services for Blackstone, one of Norm Ai’s biggest backers. When one of the world’s biggest buyers of legal services starts bankrolling an AI-native law firm built partly for its own use, take note.

All of this points to PE managers becoming steadily more sensitive to legal fees. Not yet for high-stakes work, but the high-margin island is shrinking as it always does.

Put this in context. Blackstone’s own SEC filings show it paid Kirkland $101.3 million in 2024 and $87.8 million last year. That excludes what its portfolio companies paid, which would add significantly to the total. That’s enough to make the folk at Blackstone wonder whether they are getting full value for their money – and their investors to ask the same question.

A final word

It’s hard to take issue with partners hopping from one firm to another in pursuit of ever higher profit shares. It’s rational in a full distribution partnership model where there is little financial incentive to stay or significant financial penalty for leaving.

But it leaves firms paying $20 million+ a year to some partners bound by no meaningful non-compete covenants and no process to tie their clients to the firm rather than the individual. That is not a sustainable model – and these may be the last days of Rome for it.

The bonds of loyalty and shared experience that once held partnerships together have been shattered by market forces and the rise of private equity. That’s today’s reality.

And what about those now leading these firms whose job is to keep the frogs in the wheelbarrow? The Weil story tells you all you need to know about how tough that leadership job has become and how vital it is that it’s done well. It’s genuinely scary to see a firm that size become effectively ungovernable before collapsing.

In a rising market, the frogs jump for more money. In a falling one, they jump for safety.

If we really are close to Peak PE Partner, that job is about to get harder. In a rising market, the frogs jump for more money. In a falling one, they jump for safety.

David Morley is co-founder of strategic advisory firm Dejonghe & Morley LLP. He was previously head of Europe at Caisse de dépôt et placement du Québec and managing and senior partner at legacy firm Allen & Overy.

This article first appeared in Equity Partner, his monthly newsletter for law firm leaders.