A Continuing Trend: Wall Street Firms Raiding British Magic Circle Firms


Posted on June 17, 2011 at 9:06 PM

With the recent news of Sullivan & Cromwell hiring Kay Ian Ng, former Managing Partner of Freshfields' Hong Kong firm, London's Magic Circle was hit with yet another blow to their law practices based in China. Over the past few years, a trend has developed in which major Wall Street law firms poach top partners from Magic Circle law firms and place them at the top of their newly formed Hong Kong practice. The Magic Circle, including major UK-based law firms: Allen & Overy, Clifford Chance, Freshfields, Linklaters, and Slaughter and May, have historically had a stranglehold on the Hong Kong and Chinese practices, especially in the capital markets field, but now are seeing their best partners leave for the top of the US elite.

In 2010, Wall Street giant Davis Polk launched their Hong Kong practice with the hiring of the Managing Partner of Freshfields' Beijing office, Antony Dapiran, as well as the Senior VP of the Listing Division of the Hong Kong Stock Exchange, Bonnie YT Chan. Not three months later, Davis Polk snagged Paul Chow, former head of Linklaters' Beijing office, to strengthen the firms M&A practice for their newly acquired Hong Kong qualifications.

Davis Polk and Sullivan & Cromwell weren't the only Wall Street firms to place Magic Circle partners in their Hong Kong practices. Simpson Thacher got Celia Lam, also a former head of Linklater's Beijing office, and Christopher Wong, head of Freshfields' Beijing office, in May of this year. They expect to launch their Hong Kong department in September/October of this fall. Along with those three law firms, Cleary Gottlieb took Freeman Chan, corporate finance head of Norton Rose's China office, to lead their Hong Kong practice in 2010.

This sudden trend may seem peculiar, however, there is good reason for the Wall Street firms poaching from their UK rivals. Leiming Chen, a partner at Simpson Thacher, said that with the development of the Chinese economy, Hong Kong is a major capital-placing venue for Chinese companies; it has been reported that Hong Kong led the world in IPOs the past three years. This has enticed many US firms to include Hong Kong law in their repertoire. Originally, US firms in Hong Kong usually handled US listings and US law aspects of Hong Kong transactions, leaving the Hong Kong laws to someone else. However, there was a growing fear by US firms that they were losing clients to law firms which practiced both US and Hong Kong law, what many refer to as a "one-stop-shop."

After Skadden's move to Hong Kong in 2005, the rest of the elite Wall Street firms were slow to move into the Hong Kong practice. Finally in 2010, we saw Latham & Watkins, Davis Polk, Cleary Gottlieb, and Shearman & Sterling develop their "localized" Hong Kong practice. Simpson Thacher jumped on the bandwagon earlier in 2011, which left many analysts asking when Sullivan & Cromwell would make their move. Perhaps it was pressure from competition, but Sullivan & Cromwell have finally started to develop their Hong Kong team, all at the expense of the Magic Circle.

This leaves us asking what happened to the Magic Circle? Once the dominant force in the Hong Kong capital markets, the UK firms have become compromised by their Wall Street rivals.  Recently rising to the occasion, Freshfields is advising China Everbright Bank on their Hong Kong IPO, potentially raising the bank an additional $6 billion on top of the $2.8 billion they got from their Shanghai Exchange IPO earlier this year. The bank's offering of Hong Kong shares will be Asia's largest so far this year, according to the Asian Lawyer. However there is a downside to this deal for Freshfields. Who was the partner leading the deal with Everbright? Kay Ian Ng, Sullivan & Cromwell's newest head of their Hong Kong law practice.

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