IPO blimey

Many firms are having their worst time for a decade in Hong Kong, due to a precipitous fall in IPO work

Crowded crosswalk on Hong Kong street

It would be no exaggeration to call 2012 one of the worst years for firms in Hong Kong in a decade. International firms that traditionally thrived in Hong Kong’s active IPO market have been severely affected by a massive drop in equity capital markets activity since the second half of last year.

Data from Thomson Reuters shows there were 42 new Hong Kong listings in the first three quarters of 2012. These combined raised only $5.5bn (£3.4bn) – an 80 per cent drop compared with the same period the previous year. Hong Kong’s IPO market now stands at its lowest point since 2003.

Leavers 2012

As a consequence, there has been plenty of talk about capital markets associates having been “encouraged to leave” certain international firms. In some cases, even partners have been asked to move on.

This stands in striking contrast to last year’s hiring frenzy in Hong Kong, when US firms recruited teams of partners and associates to launch local law capabilities in a bid to capture more capital markets work.

“Several firms are now cutting back on staff to stop the bleeding,” says a partner in an international firm based in Hong Kong. “When the market was at its peak they invested heavily to set up or expand in Hong Kong. At the best of times, one partner could handle 12 IPOs at once, but now the market is simply not there. Firms, as businesses, have to cut their losses.”

Some firms may choose to deal with the market drought by making redundancies, while others are resorting to voluntary sabbaticals, client secondments and internal transfers to keep their associates.

However, it was Allen & Overy (A&O) that dropped the bombshell in June when it confirmed that four senior equity partners in its Hong Kong office had been asked to leave the partnership.

Market speculation has it that the firm wants to free some equity points to invest elsewhere in Asia. For example, in May A&O opened two offices in Vietnam with the appointment of Mayer Brown JSM’s Vietnam managing partner Dao Nguyen.

However, A&O insists its decision was a direct response to market conditions in Hong Kong.

In the context of Hong Kong’s low level of activity and the increasing growth opportunities in the Association of Southeast Asian Nations (Asean) region, a number of large international firms such as A&O have chosen to diversify their investments in the area.

Freshfields Bruckhaus Deringer, Morrison & Foerster and Reed Smith have all launched in Singapore in the past two months. For Freshfields and MoFo it is their second foray into the city-state. The two firms closed their Singapore offices in 2006 and 2009 respectively, due to economic pressures.

Role over

Robert Ashworth

It is clear that Hong Kong’s glorious status as the sole regional hub for Asia is becoming a thing of the past. However, it will always remain central to international firms’ Asia strategy.

“Singapore has undoubtedly benefitted from the growth of nearby markets such as Indonesia, Malaysia and India. Our clients prefer us to be on the ground in Singapore and we need more visibility in South East Asia, so it’s only natural that we should open in Singapore,” says Freshfields Asia managing partner Robert Ashworth. “Hong Kong and Singapore don’t really compete in terms of the market for legal services. Hong Kong largely faces China and north Asia, while Singapore looks south and south-east.”

Ashworth admits that 2012 has been a tough year for everyone in Hong Kong, but emphasises that the city, being a crucial window into China and north Asia, will continue to thrive as a market for law firms.

“It’ll be no surprise if firms eager to expand their international footprint continue to establish offices here,” he says.

Ashworth’s view is backed up by the continuing influx of foreign firms into Hong Kong. In addition to the US and UK, Hong Kong is attracting firms from a wide range of jurisdictions, particularly from China and Europe. This year, two Chinese firms, Jian Yuan and Fangda Partners, and two Benelux firms, Loyens & Loeff and Elvinger Hoss & Prussen also entered Hong Kong.

Growing competition and declining IPO activity will inevitably push established outlets in Hong Kong to adjust and align their resource levels to match demand.

“In the IPO space we’ve seen a number of US firms bringing in local capability, which has resulted in increased competition in a shrinking market,” says A&O Asia Pacific managing partner Thomas Brown. “It has been vital, therefore, to use our broad capabilities and strengths such as debt capital markets, contentious regulatory and arbitration, to ensure we are not too focused on any one area.”

Freshfields has also ensured it is well-hedged in Hong Kong’s highly volatile market. According to Ashworth, in difficult markets the firm’s IP/IT, antitrust and regulatory practices have helped it weather the downturn.

Freshfields is also in the process of growing its litigation practice in the region. Earlier this year the firm relocated two senior dispute resolution partners to Hong Kong – global arbitration co-head Lucy Reed from New York and global investigations co-head Geoff Nicholas from London.

There is still opportunity in Hong Kong, but it can now be found across a broader spectrum than was previously the case.

Key figures: HK

GDP (2011)


Inflation (Sept 2012)


Population (2011)


Life expectancy at birth


Unemployment rate (2012)


Source: World Bank