US and regional firms are loosening UK firms’ grip on the market, and IPOs are not the big financial prize they once were
For decades Hong Kong has operated as the centre for Asia’s financial capital in its broadest form. Capital markets work has been the main source of income for the big firms in town and activity levels directly dictate law firms’ mood.
Last year was a fairly good one for the investment banking and legal sectors, as Hong Kong’s IPO bounced back after a sharp fall in 2012. Hong Kong’s stock exchange says companies raised some $21bn (£12bn) from Hong Kong IPOs in 2013, an 88 per cent rise from 2012’s $11.5bn, while 110 companies were newly listed compared with 64 in 2012.
While most international firms are still vying for position in capital markets, in the past few years a number of firms that traditionally focused on IPOs have shifted it away – cut-throat competition on pricing and thin margins for IPO work being major factors.
DLA Piper lost a group of capital markets partners and lawyers to
rival firms, including long-serving partner and former Asia corporate head Mabel Lui. The exodus comes after the firm’s new US-led management for its Asia practice put the growth focus on foreign investment in Asia, IP, regulatory and compliance, and dispute resolution.
Herbert Smith Freehills, which was an adviser for Chinese IPOs in Hong Kong until the market downfall in 2012, has also suffered a blow due to a string of departures and retirements from its capital markets team. It has shifted towards dispute resolution, energy and resources, and project finance following its 2012 merger. Consequently, it acted on just two Hong Kong IPOs in 2013.
While the market gradually recovers the playing field is changing, with US firms such as Davis Polk, Simpson Thacher and Kirkland & Ellis gaining ground. Prior to 2010 they worked mainly alongside UK firms in Hong Kong as US counsel. But the mass investments they have made to build up their own Hong Kong law capabilities are starting to pay off, and they gradually taking market share from their UK rivals.
Thomson Reuters data shows that US firms were involved in 83 IPOs between January 2013 and February 2014; UK firms scored 30.
Davis Polk is leading the pack when it comes to growing the number of Hong Kong-qualified lawyers. The Law Society of Hong Kong says the firm saw a 65 per cent increase in Hong Kong-qualified lawyers between the end of 2012 and April 2014.
The Wall Street firm is not only targeting capital markets work but also eyeing high-end Hong Kong litigation cases. At the end of 2012 it hired litigation heavyweights Martin Rogers and James Wadham from Clifford Chance.
However, not every firm’s localisation will be a success story. In March, Milbank Tweed Hadley & McCloy has decided to exit Hong Kong just three years after its launch there. The firm’s Asia managing partner, David Zemans, noted that the firm has readjusted its strategy to go back to what it is best at – international practices.
While the island is crowded with UK and US firms, a handful of independent Hong Kong firms continue to make a strong case for their unique proposition. Deacons, the largest independent firm in Hong Kong, held steady in 2013 and is hanging on to its independence and century-old brand.
Howse Williams Bowers, a relatively new local, has made considerable progress since its establishment in 2012. The firm doubled its lawyer headcount in 2013 to 50 compared with the previous year. Managing partner Chris Howse, former Hong Kong chief of Reed Smith Richards Butler, has vowed to make it an attractive alternative to the “big names”.
The past year has also seen another group of firms joining the hustle – those from mainland China. Around 20 PRC firms now have a presence in the financial hub, with King & Wood Mallesons and Jun He being the largest. They are finding themselves increasingly in competition with their international rivals, not only for client matters but also for talent.
Most recently, Jun He recruited corporate partner Esther Leung from DLA Piper. Its domestic rival Fangda, which launched in Hong Kong two years ago by hiring litigation partner Peter Yuen from Freshfields, has recently expanded the office with former Shearman & Sterling counsel Arnold Pang and former Edwards Wildman corporate partner Andrew Lui. Zhong Lun has recently appointed Dechert’s Hong Kong managing partner Basil Hwang as well as former Reed Smith counsel Victor Pang.