28 November 2011 | By Yun Kriegler
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Lateral hires in Hong Kong highlight market optimism as the jurisdiction repositions itself as an offshore Rmb centre. Yun Kriegler reports
The past year for the Hong Kong legal market has been characterised by a high level of partner mobility. So far this year, more than two dozen partners have made a move between firms in Hong Kong. This is likely to continue as a number of firms have admitted they are looking to make lateral hires in anticipation of a stronger market in 2012.
Most of these partners are Hong Kong-qualified and have a focus on corporate and capital markets. Many of the moves were driven by US firms’ Hong Kong expansion and localisation strategies.
Gibson Dunn is one of the latest US firms to have hired partners in Hong Kong in a bid to launch a Hong Kong practice. Hong Kong partner Joseph Barbeau says many US firms have recognised the importance of offering a one-stop shop for UK, US and Hong Kong legal advice in Hong Kong, and have started acting on this in the past 18 months.
“We found that a huge share of agreements are governed by Hong Kong law and the majority of transactional work - effectively China-related work - is now governed by Hong Kong law,” says Barbeau.
As part of the methodical build-up of its Asia practice the firm is looking to hire a dozen more lawyers by the end of the year and is applying for an office in Beijing.
“It may seem that we’re expanding when the market’s slow, but firms don’t try to ride little waves,” he says. “They position themselves over time and their expansion is driven by fundamental shifts in the market.”
Established UK firms do not see US firms’ expansionism having a major impact on the market. “The truth is simple: a handful of firms have realised their disadvantages, so they’re taking obvious steps to strengthen their practices,” says Stephen Harder, managing partner of Clifford Chance’s Beijing and Shanghai offices. “There are probably a dozen credible international firms with Hong Kong capability to date. Sophisticated clients realise that each of these firms are a powerhouse in different areas and different ways.”
Although Herbert Smith’s Hong Kong office has lost three partners to US firms so far this year, partner Tom Chau expects that US firms’ aggressive expansion will not have a big impact on the market dominance enjoyed by established UK firms.
“New entrants to an established market will need to find ways to get hold of necessary market resources, including talent, to establish a foothold in a highly competitive market in the shortest possible time,” says Chau. “Having said that, the result of their marketing endeavours will often be limited by factors such as remuneration level, breadth of practice areas, depth of client base, traditional strength, operational and financial models and cultural compatibility, to name but a few.
“Given this, prevailing over deep-rooted English firms in Hong Kong in a short period of time - say, two or three years - will be extremely challenging.”
Rise of the redback
Equity capital markets used to be the main source of income for the Hong Kong offices of international firms. The IPO market is now volatile and many firms expect dealflow in the first half of the 2012 to remain slow. However, many firms are quick to realise the growth potential of debt capital markets (DCM), particularly in relation to the internationalisation of China’s currency - the Renminbi (Rmb) - commonly known as the ’redback’.
“One bright spot of our practices in 2011 is the DCM team, which has been mandated on a series of dim sum bond [Rmb bonds] issues. It’s foreseeable that our DCM work will increase at a greater speed,” says Chau.
Mayer Brown JSM China managing partner Terence Tung considers this to be an opportunity created for Hong Kong by the central government. DCM lawyers in Hong Kong are in the best position to benefit and support the rise of the Rmb in international trade settlements, transactions and financing products.
“As the mainland has opened up to foreign investment and relaxed rules to facilitate cross-border transactions, Hong Kong’s traditional position as the gateway to China has been diluted,” explains Tung. “However, we see Hong Kong’s expanding role as an offshore Rmb centre bringing new life to the financial and legal service industries.”
Clifford Chance also sees the opportunity.
“Rmb-based transactions are an extremely important trend for Hong Kong in addition to IPOs,” says Harder. “What you have now are Chinese currency-based transactions on a larger scale, whether it be investment funds, assets management, banking and finance or private equity deals in Hong Kong. Our plan is to double Asia-Pacific revenue in the next three years, and a lot of that growth is China- and Hong Kong-driven.”