AmLaw50 revenues up; Partners cashing in on PPP; Has Secondaries demand peaked; The $3T PE problem; Goodbye to carried interest?

I hate how quiet I've been on Linkedin the last couple of weeks, but I promise it's about to change! It's been a busy time in New York at Sonder Consultants (both on the management and recruiting side) following the bonus payout season.

The January labor stats are out and U.S. job growth in the broader economy accelerated into the new year with overall private sector jobs up by 47,000 jobs or 0.6% (Dept of Labor, NY). While the stats aren't as positive for the legal sector (a total loss of 4,400 jobs for the month), from the ground in the biglaw space, with regard to job openings, interviews and placements, things are really looking good.

Biglaw Revenues Soar

Over the last couple of weeks, we've seen record financial results released for the 2024 year. No surprises from many of the biggest players.

Plenty of us are still waiting on official results coming from Kirkland & Ellis on whether they cracked the $8 billion mark following a record $7.2 billion for the 2023 financial year. Rumors are swirling and it's looking good....??

Overall, US law firm revenue was up in the lower double digits, but the real surge came from the AmLaw 50 which saw a 14% increase in revenue, representing a 19% rise in net income. Compare this to the Amlaw 50-100 which came in at 9.6% increase in revenue and AmLaw 100-200 at 9.9% revenue growth. When you see these numbers, you can really start to see the business case for why we've seen so many strategic law firm mergers. Being in and getting to the Amlaw 50, matters.

A recent bank survey conducted by 富国银行 has provided more intel into the impressive 2024 numbers and the major reasons for growth, which include:

• billing rate increases;
• a strengthening of NYC-centric Private Equity and CapM practices; and
• Biglaw's "tight control over...equity partnerships."

It's widely expected that growth will continue into 2025, and the work demand we saw in 2024 which was up 3.5% across the industry (measured by billable hours) will likely follow suit again, so I suspect lawyers will have another busy year ahead.

The positive coming out of this is that I think we're in for more record special bonuses, and another increase to base salaries in 2025/2026.

Sources: (Bloomberg and American Lawyer).

Partners cashing in

Firms like Milbank LLP who had a 23% increase to their revenue in 2024, were first to move in the special bonus saga rewarding hard-working Associates and Counsels with higher bonuses.

However, it's the Partners who have really been able to celebrate the year, with a 33% increase in average PPP to $6.8 million (average compensation for all partners was up 26% to $5.4 million) and 36.5% growth in net income for equity partners to $1.16 billion.

Similarly, 普衡律师事务所 increased revenue by 22% and gave way to execution of an impressive hiring strategy with 215 new attorneys added to the firm in the 2024 year. Again, Partners are the real winners here with the value of their shares/units increasing by 80% over four years -- a stat that they're actively publishing as a tool to attract top talent, according to Chair Frank Lopez .

Partnership changes have been some of my most read and talked about issues throughout 2024 and I suspect this year will be no different. The question is whether we'll see the same players leverage their size and/or check books to lure the best talent? My take is we'll see more mid market players use this period to lure top talent away from the bigger firms and I've seen this play out this year already with a $50,000 signing bonus for a third year funds attorney.

I recently spoke to IFLR and Karry Lai about some of the things the best law firms are doing to attract the very best talent, particularly at the Partner level:

“Something that lots of the bigger US outfits do well is that they're truly global. Lawyers at firms like Kirkland and DLA work across offices on global deals, helping to build more contacts and bigger books of business as they move towards partnership. Different origination models as well as partnership tiers are also driving much of the movement in the market. Growing firms like Paul Weiss, who some say have a blank checkbook mentality, have the benefit of attracting top talent away from [teams] where rainmakers are potentially being overlooked as part of succession plans." ~ Stefano Barbagallo, Director of Sonder Consultants, NYC

At the end of the day, financial incentive and investment in the individual is what always drives moves at the Associate and Partner level.

There's lots of optimism about the market, and the increase in transactional activity means more competitive lateral hiring activity will be on the cards for 2025.

Has Secondaries Lateral Demand Peaked?

According to Lazard 's Secondary Market Report, the Secondaries market hit $152 billion in 2024, up from the 2021 record of $126 billion, but will we see another record year?

While I don’t pretend I’m an industry expert on dealmaking in the secondaries space, what I can speak to are the lateral hiring needs we've seen over the past 3 years and we're going to see in this evolving market:

But, why?

1. The industry is sitting on $3 trillion dollars in unsold investments (record levels according to 贝恩公司 ). PE firms have been very reluctant to sell at a loss where valuations aren’t stacking up and some believe that secondaries sales have accounted for about 14% of overall PE exits over the past year (compared to ~4 to 5% in 2019 and 2020). Firms are really prioritizing associates with buyout experience across the PE sphere.
2. Supply and demand are at some of the highest levels, resulting in high prices – In the years following 2021, the decease in demand meant investors were taking steep discounts to get out of underperforming assets, but now with increased sophisticated and demands, some estimate that buyout fund stakes are priced between 93 and 98% of a funds reported value.
3. With a new administration brings a renewed interest in carried interest. Trump has proposed to close the tax loophole that private equity, VC and funds have been able to take advantage of. With Wall St preparing to defend this tax break once again (it happens with every new administration) guess what types of lawyers, will need to be across this in addition to the regulatory folk?
4. A new US Sovereign wealth fund is (in my view) a very exciting concept, the first of its kind for the US. Most global funds attorneys will have dealt with various sovereign wealth funds in their time, whether it was GIC (Singapore), Public Investment Fund (PIF) (Saudi) or Qatar Investment Authority . During my final years in Australia, I recall my time spent working closely with the Queensland Government, in directly assisting in helping to set up the Queensland Future Fund to help generate long-term wealth for future generations of Queenslanders. A highlight of my career to date!
5. Firms are growing, and can’t keep up, BUT, for the secondaries market to succeed, the primary market has to stay alive. The smart funds always win (and this goes for the very best funds' and private equity teams, too).?

While there is plenty to be excited about in this space, industry experts have been cautious to go as far to say that 2025 will bring another record year.

What's been evident in the last few months from a talent standpoint, is how some firms have adjusted their hiring strategy to ensure that they're capturing the best talent at all levels. There are serious options right now (from prestige to growth to start up) but Associates aren't waiting around -- I'm securing record deals in under 2 weeks for the very best Secondaries folks.

Where to from here for Secondaries?

Earlier this month, I tuned in to a panel discussion by Expert Webcast , with a range of industry leaders in the Secondaries space. It was interesting to hear firsthand the way the market has changed, particularly since I practiced, and the a new level of sophistication required to handle these deals as higher quality assets are being brought to market.

Interesting takeaways:?

• The quality of secondaries transactions is improving year on year.
• The old myth that secondaries does better when M&A is weaker is long gone (M&A is up 15% yet secondaries had their strongest year ever in 2024).
• Days of zombie funds are behind us as higher quality assets are being brought to the market, typically where the GP/sponsor is not exiting.
• Growth areas for secondaries including more real estate secondaries products, single asset continuation funds & credit secondaries.
• Buyers are asking a lot more questions and we’re seeing the LPAC used far more. With heightened activity in the market, buyers want to know that the assets have the value that is being reported. Where GPs are looking to hold onto assets, they must truly justify their reasoning for rolling over instead of testing the value on the open market.

At the end of the day secondaries has always been innovative. It's about providing liquidity to an otherwise illiquid asset class and where there is complexity, there is opportunity for value!

Thanks to the expert panel - Michael Belsley , Ivet Bell ( 富而德律师事务所 ), Aaron Hunt , Josef Menasche , Brian Collet and Teale Long .

I'm excited to be working with more Associates and Partners across this space for another exciting year in Funds and Secondaries.

Stay warm out there, folks! Spring is coming... ??

~Stef

Stefano grew up in Australia where he practiced as a Corporate and Funds Attorney since 2015 before moving to the US to work in Secondaries. He is now leading the New York team at Sonder Consultants where he works across all major US and global legal markets. Connect with him on LinkedIn.