Troy Pospisil, CEO and founder of Ontra, charts the adoption of legal tech by blue chip private equity firms.
In 2021, private equity set a blistering pace. According to Bain & Company, the industry saw a historic surge in dealmaking and exits, general partners had the second-best fundraising year in history, and PE fund returns outperformed every other asset class.
Despite these positive outcomes, explosive growth gave rise to an undesirable side effect — the proliferation of documents such as non-disclosure agreements, engagement letters, and non-reliance letters. While most firms prefer to channel precious resources towards more strategic priorities, they know neglecting legal documentation puts their returns and reputations at risk.
Historically, asset managers have addressed routine contract work by relying on a blend of external counsel and internal personnel. Unfortunately, this ad hoc approach typically results in high costs, slow turnaround times, and inconsistent output. Moreover, the tedious nature of the work can lead to attrition among the firm’s brightest and most ambitious employees.
Due to these challenges, the legal industry has turned to technology-enabled solutions to automate repetitive tasks and scale productivity. A Bloomberg Law survey of 600 legal practitioners found 49% of respondents at law firms and 56% of in-house counsel believed legal technology gave lawyers the ability to focus on higher-value activities.
As more and more asset managers experiment with legal tech, it’s helpful to examine an innovative approach taken by industry pioneers such as Blackstone, KKR and Carlyle. Rather than attempting to configure and maintain cumbersome contract lifecycle management systems, these firms have gravitated to human-in-the-loop (HITL) solutions. These offerings allow firms to fully automate routine contract negotiations by blending the best of software and artificial intelligence with a global network of highly trained lawyers.
By deploying an HITL offering, firms can achieve higher quality, more consistent outcomes in less time and with less expense than traditional approaches using external counsel or internal resources. The efficacy of HITL platforms stems from the use of natural language processing (NLP) to turn contracts into structured data. Once contracts and their key terms are digitized, lawyers can use machine learning-powered search algorithms to analyze the frequency and syntax of key terms. This information provides tremendous leverage as they draft and negotiate subsequent agreements.
Given the momentum HITL solutions have generated, Gartner predicts this approach will drive 30% of all new legal tech by 2025. It’s not surprising that the world’s leading asset managers have embraced HITL as the new standard for routine contract negotiation. The decision allows firms to fully automate essential but repetitive functions and enables talented and engaged employees to perform higher-value work. Ultimately, this focus unlocks opportunities to close more deals, improve portfolio company performance and deliver better returns to investors.