Partners have invested in a range of internal pooled investment funds that buy into private equity funds, according to regulatory filings and people familiar with the matter. In some instances, the vehicles have bought into specific deals where they are advising the buyside.
The Chicago-based law firm’s low-profile fund manager, called Randolph Street Investment Partners, enjoys access to some of the world’s most successful private equity firms, people familiar with the matter said, who asked not to be identified speaking about private arrangements. Such funds are typically the preserve of ultra-high net worth individuals or large institutional investors like pension funds and sovereign wealth funds.
In the past 12 years, Randolph Street has sought to raise more than $1 billion from Kirkland partners to invest in client funds and deals, a Bloomberg analysis of regulatory filings shows. The internal funds are among the largest in the legal profession, people familiar with the matter said.
The scale of those funds has steadily expanded over the years as Kirkland has grown alongside the buyout industry. In 2010, for example, the fund sought to raise $20 million with a minimum investment from each participating partner of $10,000, a regulatory filing shows. For 2021, the firm was looking to raise $325 million from its top lawyers, across two different vehicles.
Kirkland’s investment entities have no management or other control rights over the funds they invest in, according to the firm’s conflicts of interest disclosures in court filings. Lawyers are allowed to participate in investment programs and longstanding legal ethics rules are in place to deal with potential conflicts of interest.
Other US law firms have similar vehicles, people familiar with the matter say. Cooley’s affiliated investment fund -- GC&H Investments LLC -- has
Some of the deals Kirkland has invested in alongside clients include taking stakes in
A spokesperson for Kirkland & Ellis declined to comment. Bain and Blackstone declined to comment. Cooley and Audax didn’t respond to requests for comment.
The chance to share in the profits that the firms they advise make is a powerful tool for attracting top lawyers at a time when the competition for talent among elite law firms is fierce. Gaining access to leading buyout funds and their deals is a significant perk, particularly at a time when getting allocations to top managers is hard as investors have been pouring money into the asset class.
It has also helped Kirkland cement its reputation as a trusted adviser to large buyout firms, as the firm is aligned alongside their clients, a person familiar with the matter said. The firm was the top legal adviser on private equity deals in 2021, advising on $278 billion of transactions, according to data compiled by Bloomberg.
Randolph Street’s investments are, in the case of one private equity fund, included in the ‘family and friends’ bucket through which private-equity executives invest in their own funds, another person said.
There is no suggestion of any wrongdoing in connection with the arrangement. Kirkland notes in court filings that -- as is typical for limited partners in buyout funds -- its employees don’t “manage or otherwise control” the funds they invest in and have no influence over decisions “to buy, sell, or vote any particular securities.”
But -- as with other advisers that invest money alongside clients -- Kirkland’s internal funds have drawn some scrutiny for potential conflicts of interest.
“Ethics regulators have given guidance for decades,” on how such arrangements can be done ethically, said Abe Cable, a professor at the University of California’s Hastings law school. Still, investments in the private equity funds of clients could be difficult to monitor. “If the lawyer, or a different lawyer at the firm, then represents a portfolio company or an acquisition target, the potential conflict might be hard for the company to see or understand.”
Randolph Street is the brainchild of
Kirkland pioneered the arrangement in the 1980s at a time when private equity was still in its infancy, according to a 2016 court filing. The firm itself doesn’t invest in these funds and it is up to the discretion of each partner to participate, the filing said.
The pooled funds are managed by a handful of Kirkland partners who play a role in determining which private equity funds are invested in, regulatory filings show. They are Levin, Matthew Steinmetz, Bruce Ettelson and Ted Zook, a 2022 regulatory filing shows.
Steinmetz is a merger and acquisitions lawyer who has helped represent Bain Capital on multiple deals, according to Kirkland’s website. Ettelson is a funds lawyer who counts Thoma Bravo among his clients. Zook advises firms and their portfolio companies on nearly all aspects of their businesses.
Their connections to Randolph Street are less well advertised. The fund doesn’t have a website and none of the partners that help run it reference it in their corporate profiles.
--With assistance from
To contact the reporters on this story:
To contact the editors responsible for this story:
© 2023 Bloomberg L.P. All rights reserved. Used with permission.