China’s ‘red circle’ law firms snap up partners from US rivals

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China’s prime law firms are hiring extra senior legal professionals from worldwide rivals as western law firms cut back their presence in Hong Kong and China following a slowdown in monetary exercise.

Greater than a dozen US law firms comparable to Latham & Watkins, Sidley Austin and Weil, Gotshal & Manges have closed places of work in Beijing or Shanghai in latest months as M&A and capital markets work dried up in China. US law agency Winston & Strawn is the most recent to shutter its Shanghai workplace, after closing its Hong Kong department final 12 months, leaving the agency with no workplace presence in Asia.

This has offered a possibility for the largest and top-grossing Chinese language law firms — often known as the “pink circle”. They’re more and more in search of enterprise outdoors of the mainland, together with in Hong Kong, helped by big-name hires and aggressive charges, generally greater than half that of western rivals.

The rising ambition of Chinese language law firms displays the altering nature of the Hong Kong market, as Chinese language firms favour secondary listings within the territory somewhat than abroad and western law firms that after earned enormous charges from Hong Kong listings of Chinese language names retrench.

Over the previous 12 months, Chinese language authorized firms have recruited no less than 14 senior legal professionals and partners from their US and UK counterparts, together with Kirkland & Ellis and Paul Hastings, recruiters and legal professionals say, some bringing their crew with them. Most are primarily based in Hong Kong and give attention to capital markets or finance.

“There’s a noticeable development of partners from worldwide law firms, significantly US firms, shifting to prime Chinese language law firms within the Higher China area, together with Hong Kong, over the previous six months,” stated Warren Hua, a managing accomplice at JunHe law places of work.

Hong Kong-based non-public fairness and M&A accomplice Gary Li moved from Kirkland to Zhong Lun, a top-10 mainland agency, in February. Capital markets accomplice Wanda Woo, additionally primarily based in Hong Kong, moved from A&O Shearman to Jia Yuan Law Workplaces in October.

“We’ve moved as a result of we expect that this [Chinese firms] is a extra vibrant aspect of the market,” Woo advised the Monetary Occasions. She introduced a crew of 9 legal professionals along with her from A&O Shearman.

Of the 70 new listings in Hong Kong final 12 months, Chinese language mainland law firms had been the lead adviser for issuers on 20 per cent of them — an space historically dominated by worldwide firms — in line with firm filings, up from 15 per cent in 2018. Many supply charges as a lot as 30 per cent decrease or greater than their worldwide rivals, legal professionals stated.

The territory is ready to take pleasure in a $20bn listings revival this 12 months as a flurry of Chinese language firms launch secondary listings within the metropolis. “The Hong Kong capital market is stuffed with Chinese language issuers,” stated Woo. “To them, they really feel that . . . [Chinese] law firms are equally competent to finish a deal.”

Many worldwide law agency partners have additionally been struggling to tug enterprise partially “given their lack of flexibility to regulate chargeable charges”, stated Felix Lee, a Hong Kong-based senior director at authorized recruitment company SSQ.

Prime US law firms cost a “killingly costly” hourly charge globally, stated a lawyer who had just lately moved from a US agency to a Chinese language law agency. “My hourly charge was round US$1,600 [at the former US firm] . . . That form of hourly charge was simply not acceptable to Chinese language purchasers,” he stated. “Now that I’m with a [Chinese] law agency, my hourly charge is US$500 . . . this provides us an enormous benefit.”

Worldwide firms nonetheless have an edge, stated one senior accomplice at a US agency primarily based in Hong Kong, although he acknowledged that most of the largest US law firms have decreased their footprint in Asia as a consequence of “profitability mismatch in comparison with US, geopolitical points and coping with historic baggage like long-term ensures for partners who finally don’t carry out”.

Many Chinese language law firms nonetheless “would not have the total infrastructure to do correct” IPO work involving US law opinions or coping with US regulators successfully — a authorized advisory space usually required by firms doing IPOs in Hong Kong, he added.

“Earlier than, a number of worldwide law agency partners would say ‘no’ to Chinese language law firms,” stated one Hong Kong-based recruiter for law firms. “However now they’re compelled to think about Chinese language firms as they’re now not commanding the [same level of] enterprise that they used to usher in [at US law firms].”