Lifting restrictions on external investment in law firms will not lead to a ‘big bang’ for the legal profession, ‘just a big whimper’, a leading private equity investor has predicted.

His comments came as the Ministry of Justice confirmed that the new government is ‘fully supportive’ of plans for legal services reform, and wants to maintain the October 2011 timetable for implementation.

Jon Moulton, founder and managing partner of private equity firm Better Capital, said there has been no rush to embrace the new funding regime, with law firms and investors so far showing little appetite for external funding.

Moulton, whose firm raised £67m on the London Stock Exchange last week, said private equity investors were deterred from investing in law firms.

He said: ‘Law firms fundamentally lack security of earnings. If half a magic circle firm’s corporate lawyers jumped ship, profits would nosedive. And anyway, what is the value of a law firm’s financeability? Why share your firm’s profits with others? How long would your best lawyers stay with a firm that was paying 40% of its profits to venture capitalists?’

Moulton, speaking at an event hosted by City firm Rosenblatt last week, warned that providers of legal services would ‘lose their professionalism’ as private equity exerted pressure on them to deliver enhanced profits.

He said: ‘Pride in the name of your firm will be lost. It is only bulk providers of such legal services as conveyancing, personal injury and compliance who might benefit from external capital to buy IT, and employ lots of junior grades. There will be next to no demand from City firms. This is not the legal profession’s big bang – it’s just a big whimper.’

The Legal Services Act will permit external investment in law firms from October 2011. Justice minister Jonathan Djanogly said last week that rumours that the government might slow down implementation of the Legal Services Act or amend it were misplaced.

Djanogly said he was ‘fully supportive’ of the plans for reform, adding that it is important that the legal profession engages with alternative business structures, which offer potential efficiency savings.

He added that it was ‘full steam ahead’ on setting up the Office for Legal Complaints.