Big Law Revenue Jumps Despite Clients’ Private Credit Slump

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how turmoil at Big Law’s largest clients has, or hasn’t, impacted law firms’ finances. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

It was a rough first quarter for the largest alternative asset managers that drive many top law firms’ finances. Regardless, Big Law powered through with one of its strongest quarters in recent memory.

A group of six publicly traded alternative asset managers, including Blackstone, Apollo, Carlyle, Ares, KKR, and Blue Owl, saw their share prices decline roughly 42% on average during the first three months of the year.

A surge of withdrawal requests in the groups’ private credit funds drove the turmoil as investors began to fear artificial intelligence could displace the software businesses that credit funds loaned money.

Compare that to the 100 largest law firms’ first quarter performance: 4.5% growth in demand leading to a surge in revenue of nearly 14% compared with the year-ago quarter, according to Wells Fargo’s Legal Specialty Group.

If the law firms were publicly traded, shares would be soaring.

Of course, they’re not. And a client’s share price isn’t a great proxy for how much they’re paying lawyers. (There can even be an inverse relationship, right up until the point of no return.) But no law firm leader with a business serving these clients could be too comfortable with the prospect of longer-term fallout in the private credit world.

“I don’t think Big Law altogether is suffering in this process,” said Owen Burman, a senior consultant at Wells Fargo’s legal banking group. “Or at least not yet.”

The private credit story is far from finished, but asset managers are making moves to quell fears. Apollo this week said it would report daily pricing on its private lending strategies. The group’s first quarter earnings reports were largely positive, and growth in fees from lending rose faster than traditional private equity sales.

Investment industry titans at the Milken Institute confab in Beverly Hills this week engaged in plenty of handwringing about private credit’s struggles. But much of the commentary was bullish on its long-term growth prospects.

The concerns have begun to subside as shares of the asset managers have risen 14% on average since the start of the second quarter.

If the Milken speakers are correct, lawyers will help clients deal with distressed assets before returning to growth-oriented work. Some expect more formal restructurings on the horizon—evidenced by the rush of law firms bolstering new “capital solutions” practices that are aimed squarely at the problem.

I spoke with Jennifer Daly and Matt Warren, partners at Paul Hastings who advise private credit funds, on the last day of the first quarter—amid daily headlines of credit funds limiting withdrawals. They said it was a busy time for lawyers in the industry, but stressed that has been the case since the asset class began to boom a few years ago.

Fears over withdrawals and long-term lending risks created by AI disruption felt more like a knee-jerk response to the lawyers.

“The vast majority of distress is being remedied privately,” Daly told me. “That’s not a failure of the market. That’s the market working.”

Wells Fargo’s Burman said the AI buildout was a primary driver of law firms’ first quarter success.

Just this week, Anthropic announced a new entity backed by financing from Blackstone, Hellman & Friedman, Goldman Sachs, and a handful of other firms, to help smaller companies put its AI tools to work. Kirkland advised Blackstone while Simpson Thacher represented Hellman & Friedman.

The boom in AI deals may also be part of another trend: The most profitable firms (which generally have strong relationships with large private asset clients) saw an outsized increase in bills waiting to be collected.

That’s typically driven by work done on deals that are waiting to close. It could be a nice problem to have.

“Those are the firms involved in the biggest AI deals, the IPOs are all going to the top firms, and megacap M&A will gravitate towards the top firms,” Burman said. “We could see huge numbers out of that group if they get these closings.”

Despite the negative headlines, the first quarter of the year only proved why law firms advising the largest asset managers continue to pull away from the pack.

Worth Your Time

On Dallas: Law firms are storming the Dallas Fort Worth metro area to hire lawyers because of a surge of reincorporations, three new stock exchanges and the rapid growth of a business-friendly corridor nicknamed Y’all Street, Eric Killelea reports.

On Legal Tech: The stage is set for a wave of legal tech consolidation long anticipated by industry founders, users, and investors, Evan Ochsner reports. As evidence of the trend, Evan had the scoop on Legora making its third acquisition in as many months.

On Litigation Funding: Corbin Capital Partners is intensifying its push into litigation finance with the closing of its first fund dedicated to the practice, raising $342 million, Emily Siegel reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.