(Bloomberg) — Big Law made one fortune helping private equity lure large investors. Now it’s minting another helping the industry attract small ones.
Law firms that have long advised private equity giants on mergers and acquisitions — and often bill more than $1,000 an hour for their services — are joining the industry’s latest treasure hunt: prying open America’s 401(k)s.
The lawyers’ lucrative, if unglamorous, task: setting up funds that promise to bring private equity’s rarefied style of investing to everyday people, even as some big institutions pull back from these investments.
For the financial-industrial complex — bankers, asset managers, lawyers, financial advisors, record-keepers — the incentive is obvious. All told, nearly $13 trillion is sitting in 401(k) accounts and other defined-contribution retirement plans. Tapping into that trove could help plug gaps left by deep-pocketed pensions and endowments.
“More and more people are realizing there’s a lot of money in this,” said Phil Troyer, of counsel at Endeavor Law in Overland Park, Kansas, who specializes in compliance in the retirement-plan industry.
Financial advisors say average investors should tread carefully when weighing whether to add private assets to their retirement mix. There’s no guarantee future investment returns will justify the industry’s high fees.
Lawyers, however, can bill today. Legal fees for the structuring and paperwork of a simple private-markets fund for retail investors can sometimes be as much as $1.5 million, according to people familiar with the matter. Ongoing legal work can amount to hundreds of thousands a year.
Wall Street lawyers say they’ve never seen anything quite like this. Fund specialists — who once set up far less lucrative mutual funds and exchange-traded funds and were snubbed by some of the big firms — are now so coveted that pay can stretch into seven digits, people close to the firms say. Ho-hum legal work like going through fund regulations and preparing prospectuses suddenly looks like a growth business.
And so big-name law firms like Simpson Thacher & Bartlett and Kirkland & Ellis are stepping up and looking for talent in an area that, until recently, was far from being a priority. They’re helping the likes of Apollo Global Management Inc., Blackstone Inc. and KKR & Co. set up funds aimed at retail investors. A lawyer at one prominent firm said he recently received 25 inquiries in a single week from private-markets firms looking to get into the 401(k) market.
Private equity players and their lawyers have been laying the groundwork for this moment for years.
Since 2020, the number of semi-liquid private-market funds — which allow periodic cash redemptions — aimed at retail and private-wealth investors has doubled, to roughly 380, according to Preqin.
Now, the push is accelerating after President Donald Trump gave the industry a green light to go after the 401(k) market. This year, Apollo, Ares Management Corp., Blackstone, Blue Owl Capital Inc., Brookfield Asset Management, Neuberger Berman and Partners Group all announced new funds for the masses. More are on the way.
Simpson Thacher, which advised KKR on its famous 1989 buyout of RJR Nabisco, has done legal work on more than 50 funds since it started building a retail team in 2014, according to people familiar with the matter, including for Blackstone, Apollo, KKR and TPG Inc.
The law firm advised on a new partnership between Blackstone, Vanguard Group — the great popularizer of low-cost index funds — and Vanguard’s longtime partner Wellington Management Co., and a similar tie-up with Capital Group and KKR to bring private-market funds to the masses.
To handle the new business, law firms have been shelling out for legal talent. In the past decade, Simpson Thacher has expanded its team for retail funds from a handful of people to include 21 partners and 125 lawyers.
Kirkland & Ellis has expanded its unit to about 60 people from fewer than five a half-decade ago and advises at least 60 clients on their retail funds, according to people familiar with the matter. Recent clients include Ares’ Strategic Income Fund and Neuberger Berman’s Private Markets Access Fund.
In July it said it’s advising Blue Owl on a strategic partnership with retirement, employee benefits and investment management firm Voya Financial Inc. to develop private-markets products for defined-contribution retirement plans.
Two other white-shoe law firms, Davis Polk & Wardwell and Cleary Gottlieb Steen & Hamilton, have been hiring in this area, too.
Rajib Chanda, the partner who set up the Simpson Thacher’s retail practice, Kirkland & Ellis partner Erica Berthou and Cleary Gottlieb partner Jeff Karpf each said their firms are following client demand. Davis Polk didn’t respond to requests for comment.
