Private Equity (PE) fundraising can be a long and complicated process with many moving parts and legal issues to be resolved. Alongside mandatory regulatory and compliance costs, specific legal matters related to investor-related negotiations require specialist approaches and advice. In the past, managing and gaining oversight on these matters has been a challenge, leaving legal spend an opaque but necessary cost to the fund.
When PE houses instruct external law firms to advise on their negotiations, greater transparency on individual matters is required. This can include metrics and narratives documenting the time spent, team composition and how successful they were in meeting their budget guidelines. From an auditing perspective, these narratives provide evidence of compliance. Matter transparency also helps PE houses to scrutinise the comparative costs of working with their external law firms over time to support the deal team’s longer-term decision-making abilities.
While Limited Partnership Agreements (LPAs) are a relatively known cost, there is less certainty around side-letter negotiations.
During fundraising, multiple requests for side-letter accommodations can be expected – particularly from large-scale institutional investors depending on their tax, regulatory, or commercial concerns.
Because of their bespoke nature, negotiations over side letters by external counsel can be a time-consuming and laborious process. This time, billed hourly, can quickly mount up, resulting in significant legal bills. These negotiations also add potential delays to closing and thereby delaying opportunities to deploy capital and delaying revenues to the PE house.
“It is what it is” …until it isn’t
The need for efficient and comprehensive matter management oversight is essential. In the past, surfacing a granular narrative view of a firm’s legal costs, processes and activities has presented a challenge. This lack of transparency has led to a reluctant acceptance that legal is “just another cost the business” that needs to be absorbed without having all the details of why.
That is no longer the case.
Bringing transparency and visibility on the granular detail of these legal interactions through data means they are actionable – with demonstrable time, effort and cost savings for in-house teams and their external law firms.
At the same time, enabling data clarity allows PE houses to question why specific matters from specific law firms take longer and incur higher costs. And, it empowers them with the ability to manage their relationships and outputs more effectively.
This is where technology can help to optimise the legal costs of fundraising.
Bringing insight into the composition of the law firm deal teams
Have better, data-driven conversations with your law firms on the most appropriate resourcing model for your funds, helping to save time and money.
Providing transparency to the legal costs of fund set-up and documentation negotiation
Understand exactly where your legal expenditure is coming from through segmented costs attribution..
Breaking down matters in granular detail
Gain the ability to see and act on work-in-progress and billing narratives, alongside law firm team composition.
Bringing a greater analytical focus to fundraising matter management will help PE houses with their decision-making and reporting capabilities. It will also enhance relationships with external law firms by facilitating understanding of what has gone into the deal, team composition and details of the time taken. For investors, transparency through data-enablement enhances their relationships with PE houses by allowing the provision of information on the legal spend associated with fund formation. If PE houses have oversight of legal costs, are able to surface this data and demonstrate reductions in the legal bill, investors are happy because fund returns are improved. Through this, PE houses can seek to optimise their internal and external processes, minimise legal costs, and make more informed investment decisions.