Private equity firms are in ‘advanced negotiations’ over taking short-term stakes in leading law firms once they are allowed to do so, according to the peer in charge of reviewing legal regulation on behalf of the Law Society. ‘The figures they are talking about are astronomical,’ said Lord Hunt of Wirral, who added that he has been ‘inundated’ with visits from private equity firms ‘queuing up’ to talk to him.

Hunt was speaking at a Forum of Insurance Lawyers seminar last week. He said that private equity firms are interested in taking short-term, rather than long-term stakes because they are ‘appalled by some of the business practices’ at major firms. He said private equity firms want to improve business practices and profit margins before selling their stakes. ‘I don’t know what effect that will have on the stability of law firms,’ he said.

Hunt expressed concerns about conflicts of interest. ‘As soon as you have outside financing, you have the whole issue of outside influence,’ he said. ‘How do you decide who’s a fit and proper owner of a law firm? Anything that compromises our integrity is not to be welcomed.’

Hunt also confirmed that a number of leading law firms had been considering separate regulation (see [2008] Gazette, 9 October, 1). Since then, Nick Smedley’s review of the regulation of corporate legal work, a sub-strand of Hunt’s review, has recommended that the SRA set up a discrete operation internally to regulate corporate work.