A while ago I wrote an article about why I didn’t think that Commercial Property investment (and in turn, legal work in that sector) was a sound long term “bet”.

I concluded by suggesting that the reason for its success in the past was the need for pension funds to generate secure, long term income streams. And I wondered what might replace them.

Well, I was reading something at the weekend that made me think about this again.

The curious thing is that, despite lockdown and the economic turmoil, the S&P 500 is at historic highs, and while the FTSE has a way to go to achieve that goal, it has recovered a lot of ground.

But the really interesting thing is that some of what’s driving that growth in the S&P, is the return of the IPO. Back in the good old days of the dot com boom, IPO’s were all the rage. I remember my partner pitching for a tiny investment round, and being asked if he could handle the company’s IPO ….. from a couple of guys who probably couldn’t afford the bus fare home!

But that changed, particularly in the last 5 years or so, with more companies being happier to stay private for longer, resulting in the growth of the tech “unicorn” i.e. a privately held company worth more than $1bn.

However, in 2020 so far, companies in the US have raised over $60bn through IPOs. In the whole of 2019, the total was just over $40bn. And there are more to come. On August 19th, Airbnb filed for an IPO. Rumour has it that a number of other “unicorns” are lining up – Snowflake Computing, DoorDash, Instacart and Pallantir. Added together that comes to around $80bn.

But what has this got to do with Commercial property?

Well, I’m sure a number of factors push firms towards an IPO. However, I wonder if one of them is pure and simple supply and demand – i.e. there is a demand for investment in stocks and shares, because other traditional investments (e.g. Commercial Property, and Government Debt) are simply not providing the necessary returns.

And what has this got to do with Law Firms?

If I’m right, and there is a demand for “alternative” investments, or more simply, a lot of investors are looking for a home for their money …… are law firms a potential investment?

investmentA while ago I was speaking to an investor, who invests in law firms. His take was that law firms were not a great investment if you were looking for capital growth. However, if you were looking for yield, i.e. a steady return on your investment, law firms were ideal, because generally they’re pretty good at generating cash. Which of course is exactly the sort of return that Commercial Property and Government Debt investors are looking for.

So, should we expect a flow of investor money into law firms?


David Calder, Managing Director

The Cashroom Ltd