Last year, on April 28, The New York Times ‘s Dealbook blog tweeted to its many followers that Simpson Thacher & Bartlett was opening a Hong Kong office.
It was a mistake, swiftly corrected. (The New York firm had been in Hong Kong since 1993.) The news was actually that Simpson was launching a Hong Kong law practice. From the firm’s perspective, that development was perhaps just as momentous as a new office.
Leading U.S. firms have been in Hong Kong for decades, but most had been content to practice only U.S. law there—whether advising Chinese companies looking to list in New York or making sure that the big Hong Kong initial public offerings meet global investors’ expectations that they are compliant with U.S. securities law. But in recent years, Hong Kong has emerged as the world capital of initial public offerings, mainly on the strength of Chinese listings. American firms began to worry that the role of U.S. law—and U.S. firms—in Hong Kong capital markets practice would diminish over time.
Even so, as recently as two years ago, Leiming Chen, the head of Simpson’s China practice, thought that trying to build a local law practice in Hong Kong would be more trouble than it was worth. While Simpson was an established powerhouse in U.S. capital work—which commanded higher rates—it had zero Hong Kong law expertise and would have to recruit laterally. How could it compete with the U.K. firms that had started building local practices when Hong Kong was still a British colony?
Then Simpson’s main U.S. competitors began recruiting Hong Kong practitioners. The year 2010 saw Shearman & Sterling; Milbank, Tweed, Hadley & McCloy; Cleary Gottlieb Steen & Hamilton; and, perhaps most worryingly, archrival Davis Polk & Wardwell take the plunge. (Skadden, Arps, Slate, Meagher & Flom; Latham & Watkins; and Sidley Austin had brought in Hong Kong lawyers some years before.)
By the end of 2010, Chen and his partners had gotten religion about a Hong Kong practice, but now they needed to act quickly before the last laterals worth recruiting were snapped up by other firms. The U.K. firms were the natural place to go poaching. Davis Polk had already hired partners Antony Dapiran and Paul Chow from Magic Circle firms Freshfields Bruckhaus Deringer and Linklaters, respectively.
Christopher Wong, then China corporate head for Freshfields, would have been on many firms’ short lists. In 2010 he represented Chinese auto dealer Zhongsheng Group Holdings Limited on its $370 million IPO, as well as the underwriters in the $548 million IPO of Chinese department store and supermarket operator Springland International Holdings Limited. But he wasn’t looking to move.
“I was very comfortable where I was,” says Wong, who started off at Freshfields as a summer intern in 1992 and became a partner in 2005. Wong had already told some U.S. firms he was not interested in helping to launch their Hong Kong practices and was ready to tell the same thing to Chen, who invited him to lunch shortly after Chinese New Year last February. But by the end of lunch, Wong had agreed to further meetings to discuss a move to Simpson. By April, it was official: Wong and Celia Lam, former co–managing partner of the China practice for Linklaters, would lead Simpson Thacher’s new Hong Kong practice. They both started in October.
What changed Wong’s mind? Apart from the chance to work with longtime friends Chen and Lam, he says, he started to realize that the management track he had taken at Freshfields was not necessarily the best direction for him. “At the Magic Circle firms, once you’ve accumulated some years and experience, you’re expected to [be] more involved with firm management,” he says. “I think I much prefer to do the work. I’d like to get involved in deals instead of doing management work.”
Lam also liked the idea of reducing her management role. “I had always preferred the idea of being a pure practicing lawyer,” says Lam, who in 2010 advised China Mobile Limited on its $6 billion acquisition of a 20 percent stake in Shanghai Pudong Development Bank Co., Ltd. “Unfortunately, in my old firm, I progressed to such a stage that I spent 55–60 percent of my time on management responsibilities and not client matters. And the progression would have been that eventually I would have been a full-time administrator and manager, only ever meeting my other partners. I decided that was enough.”
Perhaps ironically, one of Lam’s management responsibilities for Linklaters was leading lateral recruitment for its China practice. When Chen first called her to gauge her interest, she gamely tried to talk him into joining Linklaters.
The relatively small size of Simpson and its Hong Kong office, at least compared to Magic Circle firms, was also appealing, says Wong. Simpson has around 40 lawyers in Hong Kong, roughly a third of Freshfields’s 120 lawyers. Simpson’s size has remained relatively constant, he notes, although the firm has recently recruited 11 associates to join the new Hong Kong law practice. “It clearly wasn’t looking to just grow and grow and grow,” Wong observes.
Simpson’s hiring of Wong and Lam kicked off a season of more bold moves in the Hong Kong market. In June rival Sullivan & Cromwell announced that it was launching a Hong Kong practice with partners Kay Ian Ng and counsel Gwen Wong, both recruited from Freshfields. In August, Kirkland & Ellis recruited an eight-partner “dream team” from Skadden, Latham, and Allen & Overy [see "Starshine," page 60]. The Chicago firm’s haul included stars like Dominic Tsun, who led the Hong Kong IPO practice for Skadden, and David Zhang, a leader in taking Chinese companies public in the United States. Then, in December, China’s King & Wood and Australia’s Mallesons Stephen Jaques announced a merger deal, which saw the two firms combine Hong Kong offices and agree to operate their other offices under a common King & Wood Mallesons brand. The deal will make Hong Kong the hub of the combination—current Mallesons head Stuart Fuller is relocating there from Sydney—and is clearly aimed at ending the dominance of the Asian market by U.S. and U.K. firms.
At the very least, all this activity means that the Hong Kong market, already arguably the most competitive in the world, will become more competitive—and just in time for what is shaping up to be a major slowdown. Deal activity in the region dropped dramatically in the second half of 2011, as fears about the bursting of mainland China’s property bubble and the potential impact of the Eurozone crisis took hold. Hong Kong’s Hang Seng stock index ended the year 20 percent down. The Chinese economy is broadly anticipated to slow further in 2012.
“There are just not many deals in the market,” Lam allows. But she figures that also means it’s a good time to be at a relatively strong franchise like Simpson. “I wouldn’t want to build a Hong Kong practice from scratch now,” she says.
Neither Wong nor Lam brought deals to Simpson from their old firms, but Chen says that Simpson already had plenty of Hong Kong law work that it had previously referred out to firms such as Norton Rose and Slaughter and May. “Our pipeline is very strong,” he says. Simpson’s Wong says that he and Lam have already jumped on IPOs and mergers and acquisitions deals that, in some cases, were already in the works and awaiting the hand of Hong Kong counsel. He notes that Simpson’s strong private equity franchise will also be a major source of Hong Kong law work.
“Even in a weak market, there are going to be deals,” says Chen. “The issue is whether you have a strong enough group of lawyers to get the call in a weak market. We are confident we do.”