A pioneer of the new era of private equity investment in the legal profession has said that financiers are losing interest in the market.

Colum Smith (pictured), chief executive of southern England firm McMillan Williams, said other professions and sectors such as IT are now more attractive to commercial investors.

His firm sold a 26% share of its equity to Business Growth Fund, an investor with stakes in 70 small and medium-sized companies, in March for an estimated £5m.

Private equity investment in law firms was made possible by the Legal Services Act, but McMillan Williams remains one of just a handful to take that route.

‘I am stunned anyone has invested in a law firm,’ Smith told the NatWest legal conference in London last week.

‘There are much better things to do with your money. I would expect to see lots more [law firm] implosions. My private equity house is spending no effort on law firms,’ he said. ‘We’re a lot of effort and heavily regulated in an industry they don’t really understand. A couple of IT start-ups are much less hassle [to investors].’

Smith said that his own firm attracted equity investment only because of its commitment to growing the business.

He said he knew of at least two private equity houses that assessed 250 firms before deciding not to commit any investment.

Smith stressed that firms need to find other ways of financing their business at a time when it is difficult to persuade young solicitors to become partners.