News that Ashurst is adopting a capital contribution system for partners this year finally brings the City International firm in line with the rest of its major rivals in the City.
As part of the reorganisation, each Ashurst equity partner will be asked to pay in a one-off capital contribution based on the number of equity points they hold. Currently, the firm does not ask partners to pay in capital, but retains a percentage of partner profits each year that is then distributed to partners when they leave or retire. The move is a bid to align capital contributions from lateral hires and homegrown talent, and bring the firm in line with its Australian merger partner Blake Dawson.
‘The catalyst for change is the need to align our balance sheet with Australia, as part of our financial integration in 2014,’ said Nigel Morland, Ashurst’s finance director. ‘With the old system you had people at the top of the lockstep with significantly different levels of capital, depending on when they joined the firm.’
The current system means that there can be major discrepancies between the amount of capital held by lateral partners and homegrown partners, particularly those at the top of Ashurst’s lockstep. The move from the retention system to a contribution one will enable easier financial integration with Blake Dawson, which uses a contribution system, by 2014.
‘The catalyst for change is the need to align our balance sheet with Australia.’
Nigel Morland, Ashurst
Lateral hires will be required to make an equity contribution when they join based on the level of the lockstep they are joining at, although timing will be dependent on individual circumstances, such as when capital will be released from their old firm.
Newly made up equity partners will be asked to build up their capital requirement over four years in a bid to reduce the amount of capital new partners need to borrow. The firm currently has arrangements with three banks to organise partner loans.
‘Under the old retention system, partners did not have to borrow to build up capital,’ said Morland. ‘By still letting newly promoted partners build up their capital over four years, we are to some extent retaining that principle.’
Ashurst voted through the Blake Dawson deal in September 2011, which will create a firm with revenues of over £500m globally. Comparable profits per equity partner are likely to be a crucial factor in whether a full merger will take place, which should be put to the vote in 2014. Unusually, both firms are able to walk away from the deal up until they fully merge.
However, abandoning the tie-up would be difficult for Blake Dawson, which rebranded as Ashurst Australia in March this year, and reportedly spent £971,000 on an advertising campaign to promote the firm’s rebranding. The deal also represents a significant boost to Ashurst’s international capability, with non-UK revenue at the firm accounting for 43% of the firm’s turnover in 2011/12, not including Blake Dawson.
Ashurst’s lockstep runs from 25 to 65 points and has been aggressively managed in recent years in a bid to raise PEP levels, with 17 partners moved down the lockstep in the 2010/11 financial year and three partners de-equitised in the 2011/12 financial year. In 2011/12 Ashurst had 150 equity partners and 72 non-equity partners, while the firm’s turnover rose by 6% to £323m this year. Profitability-wise, the firm has the highest profit per lawyer (£116,000) of any firm in the City International peer group of the LB100 and its PEP increased by 5% to reach £747,000.