Every dollar matters.

Every dollar matters — not just in investments, but in how you run the fund itself.

No prudent fund manager would tolerate a portfolio company CEO who spends lavishly.  Or a property level vendor who charges exorbitantly. Pretty simple. And yet, why are so many fund managers indifferent to legal spend?

The usual answers — ‘the fund pays’ or ‘that’s what big firms charge’ — are familiar. Neither stands up to scrutiny.

The “Fund Expense” Cop Out

Fund sponsors often tell me that offering costs are a fund expense, not a sponsor expense. Technically, they’re right. But the distinction is less meaningful than it appears. When investors evaluate you, they’re not just looking at the performance of the underlying investments. They’re watching how you spend their money on everything. That’s what drives their returns.

The One Percent Fallacy

In most private-equity or real-estate funds, offering costs fall somewhere below one percent of equity raised. The number feels immaterial, and so the discipline around it fades. If a sponsor raises $500 million and spends $1 million on legal and related offering costs, that’s comfortably under one percent. The logic is seductive: “It’s within market norms. The fund pays. Why sweat it?”

The problem is that percentages disguise real money and real behavior. Indifference to cost at the fund-formation stage says something about how you operate. It suggests that discipline applies everywhere except to professional services—an exception that investors notice.

The Gulfstream Test

Imagine one of your portfolio company CEOs leases a Gulfstream for daily travel. You wouldn’t shrug and say, “It’s less than one percent of EBITDA.” You’d call it what it is—a violation of trust and a drag on yield. You’d expect management to treat every dollar of investor capital as if it were their own.Apply that same lens to yourself. Legal fees may not appear in a portfolio company’s P&L, but at the fund level they have the same economic effect. Every unnecessary dollar spent on offering costs reduces distributable cash and investor return. Excess looks the same whether it’s a jet lease or a bloated legal bill; it’s just less visible. Until it isn’t.

The "Big Firm" Excuse

When investors do question legal spend, the standard sponsor defense arrives quickly: “That’s what the big firms charge.” One implication is that price and quality move together, that high fees reflect superior work.Worse, it suggests futility and weakness.

It’s a comforting narrative, but also a lazy one. The truth is that big firms charge those fees because sponsors let them. Over time, indifference has created its own pricing norm: the expectation that sophisticated sponsors will pay astronomical legal fees without the expectation of a corresponding improvement in quality or service.

In most industries, scale lowers cost. In law, it often does the opposite. Large firms carry overhead that doesn’t improve the product and their compensation model doesn't reward efficiency. Redundant layers of review, internal meetings, and training are often passed along to the client. None of that increases quality; it only increases fees.

The idea that big equals better is a convenient non sequitur. The best counsel for a fund sponsor is not the firm with the largest footprint, but the lawyer who understands the business, communicates clearly, and prices engagements appropriately. Crucially, that lawyer can often be found outside the confines of “big law.”

Sponsors often say, “Our investors insist we use a big firm.” That’s rarely true. What investors insist on is competence, experience, and accountability, qualities that don’t depend on office or head count or Am Law ranking. More to the point, they expect you to spend their money wisely, which is hard to reconcile with several hundred thousand dollars of offering legal fees.

The better play for a fund sponsor is to show efficiency in the legal spend. And if the issue of quality comes up, offer to have the offering documents reviewed by a “big firm.” It will cost a fraction of the price of originating the documents and be just as comforting.

In sum, the preference for brand names is a false surrogate for diligence, not a requirement of it. Big-firm rates persist because sponsors tolerate them. And tolerance of excessive pricing, in any business context, is just another form of waste.

 

Takeaway

Indifference to legal cost is not a sign of sophistication; it reveals a lack of judgment, internal controls, and imagination. Investors interpret it the same way you would interpret a Gulfstream lease, evidence that management has lost focus or perspective.

The discipline and discernment you demonstrate in your legal spend is a reflection of your judgment. And your judgment, more than any document or “big law name in the book,” is what investors ultimately buy.