Law firm AI & non-lawyer ownership
Commentary on the recent trend of law firms becoming more business-like
This week there was a flurry of news coming out of the legal world related to AI and non-lawyer ownership. Overall it seems that law firms are gradually becoming even more business-like, with investments in AI and non-lawyers moving into ownership. I thought I’d cover a few of the stories below and share some observations.
Law firm proprietary AI
Kirkland & Ellis announced that it has committed $500 million to develop its own proprietary AI platform. The announcement was notable because the firm opted to build their own tech vs. buy from an existing vendor (e.g. Harvey or Legora) which appears to be the more common approach.
The build vs. buy decision is common among conventional businesses. There are tradeoffs in either direction. I suspect that K&E is taking the “build” approach for strategic reasons. The world now realizes that data is the long-term moat, and K&E recognizes that they’re sitting on a trove of historical transaction data.
Correction: As pointed out in the comments, K&E is also currently using third party AI tools like Harvey & others … this does not appear to be a build vs. buy situation, but perhaps a build and buy situation. Thanks to Nikki Shaver for the correction!
Time will tell if the execution risk of developing proprietary AI outweighs the risk of outsourcing AI design to a vendor, even if they appear to be highly capable. Makes me wonder if this is why Freshfields decided to partner directly with Anthropic to develop their own proprietary AI.
Relatedly, this week Fried Frank announced that it’s launched a proprietary AI platform focused on asset management & private equity practice areas. The platform, called FundAssist, is designed for internal use and will help firm attorneys pull templates, conduct deep queries from massive documents, and leverage agentic AI to engage in complex drafting.
After seeing so many PR announcements of firms adopting Harvey or Legora, it’s been fascinating to see firms start rolling out their own capabilities. I asked a friend of mine in Biglaw if he thinks if “building” is a broader trend. My friend noted that his firm tried to do this 3-4 years ago but execution was difficult—and wondered if the foundational models today have made it easier.
Non-lawyer ownership of law firms
Just yesterday, Bloomberg reported that LA based firm Massumi + Consoli has sold a stake of its firm to private equity. Regulations prohibit non-lawyers from owning law firms so the sale was structured by creating a separate entity (called a Managed Services Organization, ie. MSO) that only handles back-office work.
The move to carve out a MSO from law firms has become super popular. It’s the structure of many of the newest AI-native law firms that have sprouted up over the past year or two. MSOs allow for investors to plow capital (indirectly) into law firms in the hopes that they’ll become more efficient—which is a legit strategy given how quickly AI has been improving.
As a general rule, lawyers are great at lawyering, but not always great at business and operational efficiency. I can see how specialization (attorneys focusing on law, MSO focusing on ops) can lead to better results overall for the firm. Interestingly, allowing for non-lawyer ownership may lead to some interesting second-order effects.
For example, businesses themselves may start acquiring law firms. Two weeks ago, we saw how private capital platform Carta acquired UK-based AI native law firm Avantia Law. Avantia isn’t structured as a MSO, but instead operates under an alternative business structure, ie. ABS, that allows for non-lawyer ownership.
On paper, the combo seems to make perfect sense—Carta and Avantia have significant overlap in their ideal client/customer base. Both work with private equity, private credit, and VC asset managers. This acquisition allows Carta to deliver services on top of all the products they offer.
It’ll be interesting to see how all of this non-lawyer ownership impacts clients. Many commentators have observed a troubling parallel: enabling indirect ownership of physician practices led to patient decisions being made based on financial considerations, with negative impact on patient treatment & experience.
My take is that it will wholly depend on the firm and the non-lawyer ownership that acquires the firm. Carta has done much over the years to build an incredible brand among its users, and I doubt they’ll try to monetize Avantia in a way that hurts the client experience. But if a private equity buyer who only looks at financial ROI numbers indirectly buys a law firm, I can see that going south quickly.
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Btw, the Kirkland announcement was $500M build spend on TOP of third party tech - they already license Harvey, and other AI solutions, which they are also keeping.