Exit of Links stars puts focus on magic circle's struggle to break into PE market

The departure of Ian Bagshaw and Richard Youle from Linklaters may have been widely anticipated, but their decision to join White & Case has raised questions about the magic circle's ability to compete against US firms in the field of private equity. 

The duo's move is the latest in a long line of high-profile departures from City firms, including Raymond McKeeve's exit from Berwin Leighton Paisner to join Jones Day and the hire by Latham & Watkins of David Walker, Clifford Chance's erstwhile private equity chief.

It is a fairly open secret that Bagshaw and Youle's CVs have been on the market for some time. In 2010 the pair looked set to join Ropes & Gray before Linklaters persuaded them to stay on with what a source has described as "a sweetheart package". 

Earlier this year, they were being courted by Fried Frank Harris Shriver & Jacobson, while it is thought Simpson Thacher & Bartlett and Latham were also on the hunt for their signatures.

Reasons cited for the pair's itchy feet include an apparently poor relationship with Linklaters' banking and finance team and frustration with the firm's lack of ambition in developing its private equity offering.

But what should be noted is that all of the potential suitors – as well as the destination of both McKeeve and Walker – are US firms. A partner at one US firm with a private equity pedigree described the move as "win-win for both Linklaters and White & Case".

"The magic circle values institutional clients like the big banks, whereas US firms are more loyal to individual clients and are better at establishing more personable relationships.

"The advantage of being a US firm with private equity is that you don't need a massive network of clients. There is no national advantage for magic circle firms – it's more of a level playing field." 

A private equity partner at a leading City firm added: "The magic circle is going to struggle to compete with the US because they don't have the environment where you can construct private equity at the centre of the firm. A private equity partner is more entrepreneurial than your average partner; this is valued more at US firms, which take into account contribution and talent. The magic circle is more interested in the institution."

Bagshaw's clients include Rhone Capital, Triton, 3i Group and Bridgepoint, while Youle's client list features CapVest, HgCapital, Terra Firma, Global Infrastructure Partners, Montagu Private Equity and Oaktree Capital.

Despite this healthy roster, one private equity partner at a City firm said the loss of the bulk of its London private equity partnership was a chance for Linklaters to reinvent its practice.

"With the exception of Freshfields and Clifford Chance, no magic circle firm has ever been very good at private equity," said the partner. "So it's not a surprise that people are moving to US firms. If I were Linklaters' managing partner, I would see this as an opportunity to build something better. The firm has admitted publicly that the practice is mid-market – the partners just don't have the right clients."

But according to Bagshaw, the mid-market is nothing to be ashamed of. "In terms of the practice, mid-market private equity is where it's been at since 2007 and the Lehman crash. We are proud of what we have built up at Linklaters and also the clients that we have acted for."

Market sources have suggested that Linklaters' banking practice was not interested in providing support for mid-market private equity clients. But therein lies a problem, because the giants of the buyout game – the likes of KKR and Blackstone – are already attached at the hip to the New York firms they grew up with in the 1980s.

For its part, Linklaters has brought Roger Johnson back to London from Stockholm to plug the gap left by Bagshaw and Youle. "We are genuinely excited about the prospect for our private equity practice," said corporate partner Matt Elliott. "It has the full support of Linklaters' banking team."

White & Case isn't the only US firm focusing on building a better private equity practice on this side of the pond – Debevoise & Plimpton, Kirkland & Ellis, Simpson Thacher and Weil Gotshal & Manges are all looking to grow.

For some, the attraction of US firms, in particular for private equity partners, is simple: they don't share the rigid lockstep of the magic circle.

"A lockstep can be complicated for law firms," said another partner at a US firm. "White & Case is not a completely 'eat what you kill' culture, but if Richard and Ian are ambitious and want a larger management role then it's the right move.

"If people have the option to make more money they will take it."

 

This article was originally published in unquote's sister title Legal Week

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