In a recent release, Simpson Thacher & Bartlett touted that it acted as counsel on four of 2018's five biggest fund closings by deal value. The clients in these deals include some of the most prestigious names in private equity. Simpson Thacher advised on Carlyle Partners VII, which closed with $18.5 billion in commitments, Hellman & Friedman Capital Partners IX ($16 billion), EQT VIII ($12.3 billion), and BC European Capital X ($8 billion).

On the basis of this record, Michael Wolitzer, a Simpson Thacher partner, calls 2018 “another blockbuster year for the firm's global private funds practice,” adding that the law firm is the “go-to advisor” for private equity firms on their most complex matters.

Wolitzer describes Simpson Thacher's success as partly a function of the firm's depth and breadth of experience in the representation of private funds. The achievements of 2018 mark yet another high point on an arc that began in earnest in the early 1990s. Tom Bell, who made partner in 1992, took on the challenge of building a private equity practice with as distinct an identity as the firm's corporate practice. Bell's focus on developing a highly specialized practice marked a turn away from what had been the norm at some law firms, where M&A and corporate generalists dipped their toes in fund formation every five years or so and there was no cohesive private equity practice group, Wolitzer said. Bell authored a formal partnership agreement for funds, codifying the practice's official status.

In the years since, Wolitzer said, Simpson Thacher has gained ever greater expertise about the private funds market through its many high-profile engagements, while keeping clients' information in strictest confidence and avoiding conflicts of interest, in some cases by splitting up work geographically between New York- and London-based funds teams. The level of market expertise gained through these representations is a huge differentiator and selling point, he said.

“I think that if you look at our client list and the things we've done, we've been able to minimize any concerns while maximizing the value add. Our practice in 2018 had another record year, with substantial double-digit growth,” Wolitzer said.

Many Pieces to the Puzzle

While numerous law firms would like to hold the title of the “go-to” private equity shop, the picture is complex, and a single ranking doesn't really suffice. When considering what law firms consume what portions of the deal pie, numerous metrics come into play.

Some competitors might question Simpson Thacher calling itself “the go-to advisor.” While it is a leader among Wall Street elite firms, many of which were late to the private equity party, other firms have made major inroads into the space over the past decade. One of the most prominent in that category is Kirkland & Ellis, which advised on more than 143 funds in 2018, with total capital commitments exceeding $260 billion. In 2018, Simpson Thacher advised on roughly 100 funds with a total closing value exceeding $150 billion. (The firm says the figures would be higher if parallel funds counted as more than one fund.)

If one goes back to January 2016, the figures are even more striking. Since then, Kirkland's funds team has advised on more than 430 funds with over $650 billion in capital commitments and has closed over 140 funds with individual commitments of more than $1 billion.

Kirkland has a particular sweet spot in the buyout fund space. Preqin data indicate that Kirkland closed 23 buyout funds in the last 12 months. The reported total value of buyout fund closings advised on by Kirkland-just under $29 billion-exceeds that of any competitor. Kirkland's buyout fund deal value is reportedly more than twice that of its closest competitor, Fried, Frank, Harris, Shriver & Jacobson, which closed two buyout funds with a total value of $12.35 billion, and more than three times that of Simpson Thacher, which, according to Preqin, closed five buyout funds totaling $1.84 billion. But, adding to the difficulty of ranking and comparing dealmakers, firms do not always report their deals and deal values to Preqin. In the case of Simpson Thacher, the reported deal values do not reflect the total, which is necessarily higher given the values of the deals mentioned at the start of this article.

By way of further comparison, other players in the buyout fund space include Paul, Weiss, Rifkind, Wharton & Garrison (three funds totaling $10.75 billion); Cleary Gottlieb Steen & Hamilton (one fund, totaling $10.6 billion); and offshore law firm Mourant (two funds totaling $7.68 billion).

A Market-Leading Practice

Kirkland's tallies in the private funds category form part of a larger pattern of outperforming competitors as a revenue-generating machine by doing huge volumes of deals. When it comes to funds, this is partly a function of the sheer investment of resources that the firm has made.

“We have a scale here that is orders of magnitude larger than other firms, including more than 380 attorneys in our funds group,” said Kirkland partner Andrew Wright.

By contrast, Simpson Thacher has less than half that number—approximately 140 lawyers—working on private funds.

Kirkland's prominence in the funds space is also closely tied to its regulatory breadth and depth. One of the firm's partners is Norm Champ, former director of the division of investment management at the Securities and Exchange Commission. A formidable regulatory practice may not have been as much of a necessity in the 1990s, but the world has changed since then.

“Fifteen years ago, a number of law firms in New York were active on the sponsor side in the private equity space. It was a much less complicated, less regulated, less labor-intensive practice than it is today,” said Wright. “After the financial crisis in 2008, we were hit with Dodd-Frank here in the U.S. and AIFMD in Europe. In order for law firms to service these sponsor clients, they need to have tremendous scale and expertise.”

Chasing the Middle Market

The question of which law firms are dominant in private equity is vastly complicated by the many different sizes and profiles of fund clients.

“There are a lot of different ways to look at the question,” said David Vaughan, a partner at Dechert. “We at Dechert tend to focus much more on middle-market private equity transactions.”

The same is true even for some market leaders. Without doubt, Kirkland's strategy is not just to target the Carlyles and the Hellman & Friedmans of the world, but also to drive up deal volume by going after the middle market.

Wolitzer of Simpson Thacher does not deny that some competitors have made a bigger push in the middle-market space.

“Other law firms probably dip a little deeper into the middle market, and by virtue of that are representing by volume a great number of funds,” Wolitzer said. “We are selective about the new clients we take on. First and foremost, we need to take care of our longstanding clients.”

The middle market may be a profitable place to chase deals, but from law firms' point of view, there can be a strong rationale for the selectively Wolitzer alludes to. Some smaller and newer prospective clients in the funds space may ultimately not be able to raise the money they hope to and may not complete a projected fund. From the point of view of tinier, early stage clients, Simpson Thacher, Fried Frank, Paul Weiss and other top players in this space may not be affordable.

“We've done smaller funds on a selective basis,” Wolitzer said. It is a mistake to assume that Simpson Thacher ignores the middle market. Many of the firm's offices, and notably those in Los Angeles; Palo Alto, California; and Houston, serve clients in this space, he stated.

“We have substantial relationships with dozens and dozens of clients of all sizes. We do have a very significant middle-market and upper-middle-market practice,” Wolitzer maintained.

Behind the Scenes

When considering any law firm's claim to be at the head of the pack in fund formation, it is good to remember that client sensitivities in this area are sometimes particularly acute and may preclude some firms from listing certain clients and deals.

“We have a lot of clients that don't want to have their names used or made public, as do other firms,” acknowledged Vaughan of Dechert.

Moreover, some closings, even those with whopping dollar amounts, are not final closings, and securities laws limit sponsors' freedom to mention publicly offerings that are ongoing. A law firm purporting to be the “go-to” shop in private equity may have some of the very best lawyers in the field, but its list of files is only part of the picture.

Other firms big in the private equity space did not participate in this story. Ropes & Gray declined to comment, while Gibson, Dunn & Crutcher and Latham & Watkins did not reply to a request for comment.