Private equity backers slam ‘runaway’ legal costs from top law firms

A representative body for pension and sovereign wealth funds is calling for a restructuring of how legal expenses are allocated in private equity transactions, proposing that these costs be shared between the investing partners and the buyout groups.

The proposal, identified on May 14, 2026, emerges as private equity backers express significant frustration over the scale of legal fees associated with their investments. These investors have characterized the expenses generated by top-tier law firms as runaway legal costs.

In the standard operational model of private equity, legal fees incurred during the due diligence and acquisition phases of a deal are typically charged to the fund. Because the fund is primarily composed of capital provided by Limited Partners—such as pension funds and sovereign wealth funds—these institutional investors effectively bear the brunt of the legal expenditures.

The buyout groups, acting as General Partners, manage the investments and select the legal counsel. Under the current arrangement, the General Partners generally do not pay for these legal services out of their own capital, which investors argue creates a misalignment of incentives regarding cost control.

By seeking a cost-sharing agreement, the body representing pension and sovereign wealth funds aims to ensure that buyout groups have a direct financial stake in managing legal spending. This shift would require General Partners to contribute to the legal costs, potentially incentivizing more disciplined negotiation with law firms and a reduction in unnecessary billable hours.

The specific criticism of runaway costs targets top law firms, suggesting that the high hourly rates and comprehensive billing practices of elite legal providers have become a point of contention for institutional investors. As these costs rise, they can impact the overall net returns for the pension and sovereign wealth funds providing the capital.