Offshore: Onshore expansion - Moving in
30 April 2012 | By Joanne Harris
24 February 2014
3 February 2014
24 February 2014
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21 July 2014
Offshore firms are setting up offices in onshore territories. But why are they suddenly stepping out of their traditional comfort zone?
What is an offshore law firm? It is a question that used to be simple to answer, with a relatively small number of firms operating from one or two jurisdictions either in the Caribbean or in the Channel Islands and the other Crown Dependencies.
These days, it is much more complicated. The term itself is increasingly divisive and several firms prefer to describe themselves as ‘international law firms’. But most of the big onshore firms, such as those in the magic circle or the transatlantic elite, can also lay claim to this description.
More recently there is an added complication. The biggest offshore firms are not just present in their home jurisdictions, but have spread tendrils across the world. Their nameplates can be found in the City of London, Hong Kong or the Middle East as well as in the Cayman Islands, Guernsey or the Isle of Man. From the City and Asia, offshore firms offer advice on the laws of their home jurisdictions, providing a timezone-friendly service to clients.
Most of these international offices are merely representative offices, with a relatively small number of lawyers. However, three firms have chosen to branch out and offer local law in places that are more commonly considered to be ‘onshore’.
Maples and Calder led the charge, opening in Dublin in 2006 by merging with local outfit Binchy Solicitors and then hiring aggressively from Ireland’s big five. Walkers followed suit, choosing a greenfield launch in September 2010.
The most recent move onshore is that of Ogier. The Channel Islands-headquartered firm opened its Luxembourg office at the start of April, hiring partner François Pfister from local firm OPF Partners.
In Ireland and Luxembourg the offshore firms have broken the representative office mould by practising local law, a key distinguishing point from their other overseas offices.
For Maples, the first firm to take the route, Ireland was the obvious choice as a place to set up shop.
“We saw opportunities to replicate the practice areas that we were focusing on in Cayman in a European jurisdiction, and Ireland was a perfect fit for us for a number of reasons,” says global managing partner Henry Smith. “We saw an opportunity to develop that office into a space that’s traditionally filled by some of the other Irish firms and to grow from that concept to service a full range of practice areas in the Irish market.”
Dublin managing partner Andrew Doyle, who joined Maples from Irish firm Matheson Ormsby Prentice (MOP) in 2007, adds that the firm was driven by the opportunity to follow clients, but also by a chance to grow its fiduciary, Maples Fund Services (MFS), in a new jurisdiction.
Doyle notes that the relatively small number of firms at the top end of the domestic market was also attractive to Maples, which saw a chance to break in and compete with the incumbent firms.
Clients also brought Walkers to Ireland, according to partner Garry Ferguson, who was one of the three MOP partners hired by the firm to launch in Dublin.
“Most of Walkers’ existing clients had an interest in using Ireland to conduct business or have some kind of presence, and Walkers simply responded to the demand that was there,” Ferguson explains.
Funds and funds clients – financial institutions, intermediaries and so on – was a core area, and Ferguson says the launch team was able to build on that base.
“We had pretty much a blank canvas as to what practice areas we wanted to focus on when we set up the office,” he explains.
For Ferguson and fellow MOP partners Ken Rush and Paul Farrell, the deciding factor in making the move to Walkers was the chance to do something rare in the fairly small Irish market.
“We saw Walkers’ client list and were excited by the prospect of building something new. In a mature market you don’t get the opportunity to put your stamp on a new venture very often.”
Both Maples and Walkers see themselves as competing against the domestic firms on a level playing field. After six years, Maples is as big as established mid-sized firms and is now close in size to the likes of Dillon Eustace and Mason Hayes & Curran.
Walkers, with around 30 lawyers compared to 92 at Maples, is much smaller, but Ferguson argues that when it comes to specialist practice areas such as funds or structured products, the Walkers team is as well-resourced as any of the domestic firms.
“In the niche markets that we operate in, yes, they’re our competitors,” he asserts. “We’re more focused on looking at clients with a presence in the jurisdictions that we operate in and presenting a single point of contact to serve each of those jurisdictions, and the domestic firms will find it difficult to compete with that.”
The firms are happy to compete with the Irish rivals because there was historically a limited amount of referral work between Ireland and the offshore jurisdictions. Irish firms practising funds work, for example, pitched Ireland as an alternative to Cayman or the British Virgin Islands, while Walkers and Maples have been pitching Ireland as a complement to the other jurisdictions. Irish funds can be set up in parallel to offshore structures, or the country can be used to domicile a holding company for an offshore business.
However, the market will be watching the success of Irish firm Dillon Eustace following last week’s (23 April) launch of a Cayman office focusing initially on funds and litigation. It is a bullish move, which Dillon Eustace says is in response to client demand for Cayman products.
In contrast, Ogier chief executive Nick Kershaw is adamant that the firm’s move into Luxembourg will not see it compete with firms already there. Several onshore firms that do refer work offshore have sizeable offices in the Grand Duchy, including Allen & Overy, Dechert and Linklaters. Top domestic firms Arendt & Medernach and Elvinger Hoss & Prussen are also strong in areas such as finance and investment funds.
“The principal reason that would have put off offshore firms from going into Luxembourg was the perception of competition with intermediaries,” Kershaw acknowledges. “We’ve been quite conscious of that.”
He says that Ogier spoke to the magic circle firms in Luxembourg “at an early stage” in the process of launching the office, and claims the local reaction to the launch has been positive.
“They see it as an opportunity to expand the amount of work flowing into Luxembourg,” Kershaw says. “The more firms like us that you get to go into Luxembourg, the more opportunity there is to attract more work into Luxembourg.
Certainly if you’re looking at Dublin vis-à-vis Luxembourg, then our presence in Luxembourg is more likely to lead the North American hedge fund work heading to Luxembourg instead of heading to Dublin.”
Kershaw says Ogier has no intention of being a full-service firm in its new jurisdiction, although it will, of course, practise local law. Areas such as investment funds, including hedge funds and private equity, are obvious to begin with.
One driver for the move onshore cited commonly by observers is the impending implementation of the EU’s alternative investment fund managers directive (AIFMD).
The directive was not on the table when Maples went into Dublin, but was being discussed at the time of Walkers’ launch there and is now set to be brought into force next year. The legislation may encourage more fund managers to domicile funds in the EU, giving jurisdictions such as Ireland and Luxembourg an advantage.
According to Kershaw, Ogier was already considering opening in Luxembourg before the AIFMD was passed through the European Parliament, but the legislation “crystallised” the firm’s plans.
All three firms that have gone for the local law, onshore route have done so in conjunction with their fiduciary businesses.
Ogier is planning to launch an administration service in Luxembourg later this year, and for Maples, the opportunity to expand its successful MFS business into Ireland was a core part of the decision to open in Dublin. Smith and Doyle say the synergies between the law firm and the fiduciary have contributed to the success of the office, adding that clients like being able to receive all their services from one place.
Walkers also launched its Walkers Management Services (WMS) company in Dublin, but the firm has just announced the sale of WMS to trust company Intertrust. Ferguson believes the sale will not have a detrimental effect on the office, saying more work was referred from the law firm to WMS than vice versa.
“The decision to sell the management services group was a strategic one and in line with what we see as market trends,” he says. “There’s a growing concern that providing fiduciary services under the same roof as legal services entails a natural conflict and some parts of the market are finding it more difficult to come to terms with that conflict.”
Ed Strickland, a consultant focusing on the offshore market at legal recruiters Glass Consultancy, points out that fiduciary businesses contribute around half of the profits of the offshore groups and can therefore help support new offices.
Appleby group chairman Peter Bubenzer agrees. “I can’t see any of the larger firms venturing onshore without the fiduciary business,” he says. “I would have said it was pretty fundamental to the success of the offshore firms and it would be of great significance having a fiduciary if you’re considering moving onshore.”
However, those firms with fiduciaries have not always chosen to launch a legal offering in tandem with the fiduciary business. Jonathan Rigby, managing partner at Mourant Ozannes, notes that the funds services unit of legacy firm Mourant du Feu & Jeune had offices in several onshore centres, including Ireland, Luxembourg and New York, but the firm never practised law in those jurisdictions.
Rigby says neither Mourant du Feu & Jeune nor the merged Mourant Ozannes sees that its clients have any desire for the firm to provide advice onshore.
“It’s very clear to us that our clients don’t need us to be in Luxembourg or Ireland. We don’t see client demand,” he says. “I think it’s because there are very strong established firms operating in these jurisdictions. Many of these firms themselves have an international footprint, so clients and intermediaries are very well catered for.”
Rigby also thinks that the type of products offered by offshore and onshore jurisdictions are very different, with onshore structures operating under more complex tax regimes and with more regulation, while offshore products have more in common with each other.
Bubenzer agrees that the past few years have seen a convergence in regulation and improved standards in areas such as anti-money laundering across the offshore world. He disagrees with Rigby’s assessment that offshore and onshore products are different, however.
“There’s convergence in the sense that certain types of business are seen as capable of being located onshore or offshore,” Bubenzer says. “In the sense of the legal markets, I don’t think there’s convergence: offshore is still its own little distinct market.”
All agree that offshore firms will continue to look for new jurisdictions in which to operate, certainly with representative offices if not local law practices.
“I think that what’s changed in the past year or two is that they’ve realised that the market’s shrunk and they just need to keep up the market share globally,” says Strickland. He points out it is more important now for offshore firms to take their products to the clients, rather than waiting for the clients to come offshore.
It is for this reason that several firms have set up offices in Asia and the Middle East in recent years. Appleby and Ogier are now both in Shanghai, although the former has not yet launched legal services there. The majority of the offshore top 10 are in Hong Kong, with Mourant Ozannes the most recent arrival. Singapore, home to firms including Cains, Conyers Dill & Pearman and Collas Crill, is increasingly popular.
Conyers has had offices in both Dubai and Mauritius for some time, providing offshore advice. Harneys has found success in Cyprus, being the only offshore firm giving Cypriot advice, although Conyers has a successful association there.
Conyers’ chairman John Collis calls opening in places such as Hong Kong and Singapore a “city” strategy, designed to either sell a new jurisdiction to clients or expand the firm’s product range. He adds that the firm’s Mauritius office was a product-expanding decision that has paid off thanks to increasing investment from India.
Countries tipped as the next big targets for the offshore firms include Singapore, for those firms not already there, Cyprus, Mauritius, Malta and Switzerland. All five jurisdictions have characteristics shared by the offshore world. They are popular finance centres, with low-tax regimes; indeed some would consider them ‘offshore’ or include them in the dreaded category of ‘tax havens’.
“It’s going to be the jurisdictions that are onshore but offer a similar offering to offshore,” believes Kershaw.
Definition of what a firm is is similarly cloudy. “We see the word ‘offshore’ as somewhat outdated,”argues Maples’ Doyle. “We advise on the laws of three jurisdictions. That’s a more accurate description of what we do.”
“We don’t make this distinction in our own minds about whether we’re offshore or onshore,” adds Smith.
With typical lawerly caution, no one wants to rule out entering new jurisdictions.
“We’re always looking at jurisdictions such as Luxembourg and Switzerland, and will no doubt take a closer look,” Ferguson says. The Walkers view is shared by many.
Physical expansion is likely to remain the main play in the future, save for a limited amount of local advice offered by the firms that are in onshore jurisdictions, for example property law in Ireland.
“Firms won’t become less offshore for a while in the sense of what they do,” believes Collis. “In the sense of where they are, I think yes, the market will become less offshore.”
As with any expansion plans for any firm, cost will remain an issue. Offshore firms are said to be immensely profitable, but opening anywhere new requires significant investment. This is surely why several firms are remaining cautious and watching what the pack leaders such as Ogier are doing closely.
“The bigger firms will wonder if the juice is worth the squeeze,” notes Strickland.
Change in the market is inevitable, but like most things in the offshore space, it is unlikely to happen quickly. True onshore-offshore convergence is not on anyone’s horizon; the reliance of the offshore practices on referral work remains too high for this to be a realistic possibility.
Nevertheless, the days when offshore lawyers were confined to far-flung islands are well and truly over.