Competition heats up for legal talent in the private equity market

Angus Denny our consultant managing the role

The Financial Times recently reported Freshfields Bruckhaus Deringer, an elite magic circle law firm, has paid additional bonuses to its London-based private equity lawyers. Making Freshfields the latest international law firm to move away from its traditional pay structures, to stem the tide of defections to rival US-based law firms. Sources familiar with the matter told the FT that the payments equated to about £50,000 for some mid-ranking lawyers.

 The bonuses were sparked by the post-pandemic boom in private equity-backed mergers and acquisitions in the US. Which, in turn, caused a mass exodus of specialist lawyers from the magic circle to lucrative opportunities at US-based firms. 

Transatlantic competition for legal private equity talent 

However, the competition between European and US firms for talent has long been a trend in London. US firms have rapidly expanded in the City, bringing more competition for talent. The problem for magic circle law firms, like Freshfields, is that American firms are willing to reward new recruits with compensation packages far beyond City norms. 

But the move from Freshfields is only the latest in a series of tweaks to bonus structures across London law firms, particularly for those consulting in the private equity space. Allen & Overy and Clifford Chance are two notable outfits who have made changes to how they pay bonuses to their associates working in the City.

 The FT article highlights that law firms are making these changes “to introduce flexibility and remain competitive in the busiest areas, with the most in-demand lawyers able to earn far more than peers without the same volume of work”. 

Additionally, the FT outlines that the move is being enthusiastically welcomed, with one partner at an international firm in the City stating it was “absolutely bonkers to have a one-size-fits-all approach” due to the differences in revenue generated by different teams. 

Legal recruitment in Financial services

What are the implications of the in-house legal market?

Seldom do we see magic circle lawyers moving to smaller firms. Indeed, if they move firms, high profile US outfits have always been the favoured option. But what does Freshfield's financial incentive mean for the in-house market?

My view is that Freshfields incentive for their lawyers working in private equity can only positively reflect on the London legal sector, both private practice and in-house. I predict other magic circle firms will offer additional bonuses to their private equity specialists, however I believe this trend will remain exclusive to  magic circle firms. 

It is without doubt that financial incentives, like the additional bonuses, will keep employees motivated to stay in the elite London firms, as well as providing a potential incentive to attract talent from US firms too. The introduction of new bonus structures in private practice will have a definite impact on in-house legal. For those outside of private practice, salaries aren’t increasing relative to inflation and are very much out of step. 

However, lawyers don’t necessarily make the move in-house for money. For many, going in-house is an attractive option, as there is a better work-life balance and potentially a more relaxed business culture. FinTech’s in particular are an attractive option for those looking to move away from private practice

What does this mean for legal talent for H1 2022?

I foresee the changes in bonus structures having a profound effect on legal recruitment. The changes will not be isolated to those in the private equity space. Other talent-shy legal disciplines will look to these changes as a means of attracting and retaining lawyers for their divisions. 

This undoubtedly will sway more lawyers to private practice with the promise of a much larger bonus pay-out. In turn, this will cause a brain drain for the in-house legal market, which has traditionally been a more attractive option for lawyers. As a result, I expect we will see more training contracts being offered to graduates to make up for the shortfall. 

Seldom do we see magic circle lawyers moving to smaller firms". 

Our legal recruitment specialists are here to help you progress your career

At Marks Sattin, our legal recruitment consultants make sure to keep abreast of the latest trends in their markets, whether that's private equity, M&A, banking or Fintech. This detailed overview of the commercial landscape enables us to advise professionals where their best career opportunities lie. As a specialist recruitment and executive search firm with over 30 years’ experience, we've helped many professionals find their next exciting opportunity, whether that's within global organisations or growing SMEs. Search for your next legal job, or register your details to shortlist jobs and sign up for job alerts, so you're the first to hear about our latest opportunities.


28/02/22
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