Hedge Funds Seek Big Profits by Buying Law Firms

Article Summary: Hedge funds have recently begun branching into a new market segment: the legal industry. While this may seem insignificant, it does portend a sharp increase in competition, particularly in local markets. Small- or even mid-sized law firms will need to adjust their digital marketing strategies to remain competitive in search engine rankings.

For years, hedge funds—long known for their high-risk, high-return investments in the financial sector—have purchased and sold various types of businesses and private debt. Hedge fund assets include everything from equity and real estate investments to commodities and derivatives. In recent years, there have been a number of instances where hedge funds have purchased law firms through private equity agreements. Many seasoned industry experts have reached the conclusion that the legal industry, like so many other sectors, is ripe for disruption. A David-and-Goliath dynamic will require law firms to take their digital marketing strategy much more seriously to remain competitive against the deep pockets of their competition.

Some legal experts have raised concerns over the implications of hedge funds buying law firms. They have argued that there is a potential for conflicts of interest to arise, as hedge funds may be more focused on maximizing returns for investors rather than serving clients’ best interests. Furthermore, there are concerns that the legal profession may lose its independence and integrity if it becomes increasingly influenced by hedge fund investors. For the small- or mid-sized firm owner, however, a greater concern is simply: what will this mean for their business?

Why are hedge funds buying law firms?

Hedge funds are attracted to law firms because of the potential return on investment. The legal industry is already a multi-billion dollar market, and law firms often have significant assets, including but not limited to local market share, client lists, and intellectual property. Any of these assets can be leveraged for profit, particularly when paired with other law firms’ complementary assets.

Hedge fund owners have rightly noted that many law firms remain committed to traditional marketing channels: word of mouth, networking events, and flashy business cards. Few attorneys appreciate how much marketing has changed in recent years: that digital channels of networking, strategic link building, and a fast-loading, well-designed website are vastly superior ways of growing a legal business. Veterans of the industry may be surprised to see their business inquiries go down as their competition becomes stronger.

Now that hedge funds are purchasing law firms, what changes can the legal industry expect?

While market penetration may take time, hedge fund ownership promises to heavily shift the balance in favor of large, multi-state legal entities. While there are several challenges facing hedge funds entering the legal market—the legal industry is heavily regulated and subject to strict ethical rules—the financial power of these entities will likely expedite and amplify their presence in the industry. 

Additionally, many law firms remain resistant to change, particularly with their digital marketing strategies, and may be unwilling to embrace the types of cost-cutting measures that hedge funds typically push for. Despite these challenges, hedge funds are likely to continue exploring opportunities in the legal industry, which means independently owned firms will need to shift their priorities to remain competitive.

While the shift may be gradual, one way the legal landscape will change is through an increasingly competitive online marketing field. Hedge fund-owned law firms will almost certainly prioritize digital marketing as part of their business model. (Large firms often already have several email marketers and content marketers on staff.) With Google rankings that favor targeted SEO and keyword breadth, consistent organic content, and aggressive PPC (“pay per click”) marketing, small- to mid-sized firms will find themselves losing out market share—and high-caliber cases—to hedge fund-owned firms.

How can lawyers shift their digital marketing to remain competitive?

As the legal market continues to evolve, we can expect to see more hedge funds (or private equity firms) running law firms. Sadly, many independent law firms have been historically slow to adopt the technology and efficiency improvements that will keep them competitive against firms owned by hedge funds. This creates opportunities for cost savings and process improvements through top-down management and AI technology. Firms that are new or poorly represented on search engines will see hedge-fund-owned law firms slowly erode their market share. This will make prospective clients harder to find—and great cases harder to get.

While the trend of hedge funds buying law firms is still in its early stages, it will be interesting to see how it develops in the coming years, and be aware of the potential consequences. As with any new business model, it's a balance to strike between innovation and maintaining the integrity of the industry.

3 Ways to Make Your Law Firms More Competitive:

  1. Complete your Google Business Profile. A Google Business Profile (formerly “Google My Business”) is a Google-based business listing that appears in online searches. It also doubles as a tool to manage and optimize your search results. These static business listings appear on Google Maps, as well as in local search results (for example, “attorney near me”). This will help your potential clients find directions and business hours, read about your services, peruse your reviews, learn about your business philosophy and practice areas, and discover answers to frequently asked questions. In this capacity, your Google profile can double as an effective SEO and lead generation tool.
  2. Have your site audited regularly. A full, backend audit will allow a marketing professional to help you understand the places you may be missing out on market share. In many cases, these audits reveal simple fixes that lead to massive results. By fixing broken links, improving meta descriptions, and cleaning up your site schema, you allow search engines to find you more easily. 
  3. Write high-quality content. One of the easiest ways to tell the viability of a company is by looking at the law firm’s website. Is their site regularly updated? Is their latest blog post well written? Relevant? Large firms—and law firms owned by hedge funds—have a staff of content writers constantly monitoring legal websites and competitors’ blogs for content ideas. They also make use of SEO software (Moz, SEMRush, Ahrefs, etc.) to improve their market penetration. Consider hiring a content writer who can churn out high-quality blogs with an eye toward user intent. 


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