Big Law Firms Cool to Idea of Bringing on Burford’s Billions (1)

Some Big Law leaders are skeptical of Burford Capital’s plan for minority investments in firms, in part because they don’t see a need for the cash.

The publicly traded litigation finance pioneer last month floated the idea of buying a stake to several US law firms. Some legal leaders worry taking on these kinds of arrangements could breach state rules against non-lawyer ownership of firms. Others hesitate to relinquish any control, even for investments in back-office services only. And some struggle to know what they’d do with new money from the outside.

“Our service offerings are designed to complement our lawyers in delivering the best service to our clients,” Miguel Zaldivar, chief executive officer of Hogan Lovells, said in an interview. “Profitability matters, but we also want to protect our unique culture. Even in the provision of ancillary services, I consider it a challenge.”

The skepticism shows why Burford leaders have mounted something of a public relations campaign to persuade law firms of their deep experience investing in professional services. The investor, which has $3 billion in market capitalization, has been scouring for large law firms willing to take the jump as it engages in talks with several firms it hasn’t named.

Many of the country’s top law firms are still going through the “education phase,” said Travis Lenkner, chief development officer at Burford. “There are forward-thinking firms that know a lot about this,” he said. “But that is probably still the minority of firms.”

Asked to respond to comments of leaders who speak skeptically of the idea, Lenkner said: “It is their peers who are reaching out.”

New Model

Burford since its founding in 2009 has pumped $11 billion into single lawsuits or portfolios of cases with the hope of reaping a share of awards—an investment practice known as litigation finance. The company now also wants to pour capital into law firms through managed services organizations, or MSOs, a structure used by private equity firms to invest in accountancies and healthcare providers.

The model creates a separate business that houses service functions of a law firm, such as billing and human resources. The law firm then contracts with the MSO for those services, freeing up resources for managing partners to focus on their core business of serving clients.

Burford for example invested in UK law firm PBC Litigation in 2020, receiving a 32% stake in the business. The UK’s legal industry regulations, which are more permissive than those in the US, allowed such a stake.

None of the largest US-based firms—a group that includes multi-billion dollar businesses such as Kirkland & Ellis, Latham & Watkins, and DLA Piper—have to date publicly voiced interest in the more limited investment scenario that would be allowed stateside.

“There are few people openly discussing these models in the legal profession,” lawyers at Holland & Knight, including partner Trisha Rich, who advises on alternative business structures, wrote this month. The attorneys weighed in on an ethics opinion in Texas that they said was the first to address the issue of MSOs for law firms.

Investors see openings with smaller operators. Catalex Network, a company that focuses on creating MSOs for boutique law firms, closed on its first fund in June for $25 million, according to SEC filings.

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“We are in equal parts an investor and capital provider and shared services organization,” said Jeff Goldenhersh, founding partner at Catalex. “We purchase back office assets or non-legal assets of the law firms and then we provide services going forward that helps the lawyers at the boutique firms focus on doing what they love and doing what they do best.”

One person with knowledge of MSOs, who requested anonymity to discuss details of the industry, roughly estimated that more than $100 million has been invested into legal MSOs in the last 10 to 15 years. Some of the money is from traditional private equity firms, while some has come from litigation finance platforms, the person said.

That’s not much money in the world of Big Law. To put that in perspective, the 58 largest law firms each cleared more than $1 billion in revenue in fiscal 2024, according to the American Lawyer.

‘Hypothetical’ Talk

One law firm leader said the conversations around investing in law firms remains “hypothetical,” considering the prohibitions in the US against fee-sharing, known as American Bar Association Model Rule 5.4. Even if that problem was solved, lawyers would not react well to ceding control of their business to outsiders agitatating for higher profits, said the leader.

“Lawyers don’t generally respond well to being led by someone who’s not a lawyer and hasn’t walked in their shoes,” this person said.

Multiple law firm leaders requested anonymity to speak candidly about their firms’ internal operations.

A second leader said the firm didn’t need an infusion of cash in return for giving away an equity stake in their business. Partner capital and traditional lenders are adequate to cover their needs, including costs associated with generative artificial intelligence.

“Right now, you wouldn’t know what to spend the money on,” said the second leader. “AI is not tear-your-business-model-up money.”

Burford’s Lenkner said the MSO model doesn’t breach the US fee-splitting provision. Burford would be a “passive” investor in the services organization, he said, and law firms would be well-placed to negotiate their continued control over their operations into contracts tied to any deals.

“The day-to-day operation of the firm is not something that Burford or any outside investor has time for or wants to be involved in,” Lenkner said.

The MSO structure would provide partners with true “equity” in the businesses they’ve helped build, Lenkner said. The cash firms gain by reducing overhead could be used to invest in technology, provide guaranteed payments for lateral hiring groups, or make acquisitions of rival firms, he said.

“It would mean that the lawyers were actually harnessing the equity value of the business in a way that hasn’t been possible,” he said.