If the past summer of upheaval has shown us anything, it is that Hong Kong is a truly resilient city. This has been reflected in the city’s legal market, which has seen a steady flow of work despite not just the protests, but also the trade war, as well as industry-specific factors like changing client demands. In this feature, leaders of four firms in the city talk about how the past year has been, and what 2020 holds.
ALB: What has the past year been like for your office in Hong Kong? What were some of your achievements, and what challenges or obstacles did you face?
Padarin: 2019 has been a very exciting year for Carey Olsen. Our Hong Kong ofﬁce was founded in 2016 with a litigation and restructuring department. This year we launched new corporate, funds and ﬁnance departments to complement our existing corporate offering out of our Singapore ofﬁce. I joined the Hong Kong ofﬁce as head of corporate and funds, and partner James Webb joined as head of banking and ﬁnance. We further expanded our Hong Kong corporate and litigation practices through the relocation to Hong Kong of two Bermudian lawyers.
Carey Olsen is now able to offer a full range of Bermuda, BVI, Cayman, Jersey and Guernsey advice directly from its Asian ofﬁces. We are looking forward to continuing our growth trajectory, building our book of business and demonstrating Carey Olsen’s reputation and commitment to excellence.
This year there have been well-publicised regional economic and socio-political issues, which market participants may view as obstacles. For example, the U.S.-China trade war has impacted on M&A deal volume in China, but we have seen a corresponding increase in deals being done in Southeast Asia and India. We are optimistic that client demand for high quality offshore legal advice will remain strong, especially during more turbulent times.
Lai: Overall, last year has been a very busy year for us. Both our capital markets practice and our private wealth practice were booming, and we achieved one of our best ﬁnancial results ever. However, things have since slowed down (I think) driven by the combination of trade war and the recent Hong Kong disturbances.
With the increase in activities, we also saw a lot of staff movements. Hiring and retention became an issue. We also saw more and more PRC law ﬁrms coming to Hong Kong, many of whom claimed to be able to offer a “one-stop” shop solution.
A lot of new entrants including law ﬁrms linked to the Big Four. We sense, but cannot conﬁrm, that some of the U.S. law ﬁrms are retreating from Hong Kong.
Chu: In the past year, we have added more partners (Kareena Teh, Bonnie Yung and Jason Wang). Thus, we can further strengthen our M&A and corporate ﬁnance practices, and develop the regulatory investigation and compliance practice. Our lawyers continue to work on notable transactions. Further, with the strong collaboration of other member ﬁrms of the global EY network, our ﬁrm is advising an even more diverse range of clients.
Ng: This was a year of transition for us with some old faces departing to making room for new ones. The ofﬁce was honoured to have been recognised by ALB as the “PRC Firm, Hong Kong Ofﬁce of the Year” again this year and was recognised as the “Tax and Trusts Law Firm of the Year” in 2018. Firms, especially in Hong Kong, always suffer from FOMO and the move of more ﬁrms out of Central and how to work more efﬁciently are issues we are grappling with.
ALB: What are some of the notable trends you have witnessed in Hong Kong’s legal industry in the past 12 months in terms of the quantity and type of work? What have you been doing more of, and what have you seen a drop in?
Webb: 2019 has seen a downturn in IPO activity and mainstream “new money” debt deals. There have also been fewer high-proﬁle acquisitions or leveraged ﬁnance transactions than in the previous year. There are several reasons for this, including market conditions and PE fund lifecycles.
On the other hand, there has been an uptick in credit and secondary fund activity and several strategic acquisitions and disposals. There is new economic substance legislation which presents opportunities for us to assist clients with regulatory and structuring queries. Our trusts, litigation and restructuring teams also see a regular ﬂow of enquiries.
In addition, we have been involved in a number of high-profile restructuring transactions over the past year, and have also seen a signiﬁcant increase in commercial litigation arising out of family disputes and succession issues. Lai: It has been a market-driven by ﬁxed-fee and price under-cutting. Until recently, there had been a huge amount of capital markets deals but a lack of substantive M&A deals. Last year, all our practice areas saw growth. Most notably in capital markets, regulatory and investigation, and private wealth. However, there appear to be a drop in M&As, public takeovers and bond issuances.
Chu: In the past 12 months, the legal industry has been putting more attention to legal technologies. One reason is the push for “doing more for less.” Another reason is need of in-house legal teams to catch up with the technology advancement in the business units in their corporations, and such need also calls for law ﬁrms to move ahead with legal tech for the beneﬁt of the law ﬁrms and their clients. However, I think it will take some time for legal tech to be utilised on a larger scale in such a traditional industry. Another trend is that several corporations are undergoing restructuring to re-assign their business strategies given the trade talks between the larger economies. That brought about more legal work for our ﬁrm in the past 12 months and we often undertook such work with other service lines of EY such as tax and advisory services.
Ng: We are seeing the rise of supranational extra-jurisdiction laws (GDPR and other OECD and EU initiatives as examples). Is this the dawn of the new global trade and technology order? Hong Kong has always been very open to foreign ﬁrms. It will be fascinating to see how these trends will affect the market.
ALB: What are some of the key trends you’ve witnessed in how your relationships with clients in Hong Kong are evolving?
Webb: In this market, there will always be certain market segments and types of deals where cost, not quality, is the primary driver. However, with increased regulation and varied market conditions, we are seeing more of a ﬂight to quality, with clients placing higher value on those individual offshore lawyers who are genuinely experts across a range of products and situations and can, therefore, deal with complex queries quickly, knowledgeably and commercially. The key for us is to develop Carey Olsen’s brand reputation for expertise and continue to build strong relationships where we are viewed as trusted advisors.
Lai: The importance of Hong Kong as the gateway between China and the rest of the world (whether inbound or outbound) appears to be diminishing. Fixed fees are becoming the norm in non-contentious work. There is a proliferation of smaller ﬁrms splintered from larger international ﬁrms. And there is increasing competition from these ﬁrms – they tend to be more price elastic.
We are investing a lot in developing our people (whether legal or non-legal) to be adaptable and agile. It is hard to predict how the legal industry will evolve in future, but history has shown that those who survive are not necessarily the largest or strongest, but those who are most adaptable to change.
Chu: Quite some clients are feeling pressure given the uncertainty brought about by the continuing trade tension between China and the U.S. and worries about the global economic slowdown. They tend to be more careful with investments and borrowings. To most of our existing and potential clients, the law ﬁrm’s ability to foresee problems and provide solutions is much more important than the ability to implement the client’s designated route. Our ﬁrm adopts an approach to stay close to the external environment and the clients in order to offer legal services proactively.
Ng: Clients want direct contact with experienced senior lawyers who can make a call. Lawyers can decide whether they want to provide that level of service or not. I think there will be a great segmentation among lawyers on how they work, and what they want to do (and how much they are paid). It gives more ﬂexibility to lawyers, and ﬁrms will have to adjust.
ALB: How would you describe your strategy for the Hong Kong market in the near-term? What are some of the big plans you’ve put in place for business growth for the coming years?
Padarin: Carey Olsen is very bullish on continuing growth in Asia, and we are making a serious long-term investment in Hong Kong and the wider region. We are expanding our physical footprint and will be moving into a larger ofﬁce space in early 2020 to accommodate our growing team. Our focus is on building a team of excellent, well-rounded lawyers and differentiating ourselves through providing quality advice and best in class service.
The offshore jurisdictions are deeply embedded in the Hong Kong industry and can add value and stability in all market conditions. We look forward to working closely with clients to help them drive their businesses forward in the region. Lai: Our strategy involves staff retention and development, and improving efficiency through re-looking at our processes. In respect of expansion, we have sought to grow organically by building from our core strengths.
Chu: Our strategy is to build a stronger cooperation relationship with EY and other players in the market such as investment banks and consultancy companies. Through such cooperation, we hope to offer clients more integrated business solutions rather than mere legal technicalities. Such a strategy can be extended to promotion of legal technologies to the Hong Kong clients, where our legal advisory services may be offered in conjunction with the legal managed services offered by Riverview and/or Pangea3 as members of the global EY network. I think one of the keys to succeeding in the Hong Kong market is to grasp a comprehensive understanding of the clients in terms of their business needs, the environment in which they operate, the growth and risk factors, etc. Only with such under-standing can a law ﬁrm be able to come up with a business solution and combine it with technologies.
Ng: Hong Kong has to ﬁnd its place in the Greater Bay Area (GBA) within China, and ﬁrms have to ﬁnd our place. We are well placed with the GBA initiative as one of the larger PRC ﬁrms in town with big ofﬁces in Guangzhou and Shenzhen.
ALB: What are the keys to succeeding in the Hong Kong market for a firm of your size and scope?
Lai: We need to build an adaptable, business-centric and client-centric work-force. The legal profession is part of the service industry. Like all those in the service industries, technical expertise is merely the entry-ticket. Often, what distinguishes a lawyer from another is that lawyer’s ability to connect with and understand the client. In a law ﬁrm of our size, clients often come to us, not because we are the biggest or the best, but because they know that we will do our best for them. The charge-out fees for transactional matters have not changed for years. Yet, law ﬁrms have managed to make proﬁt year-on-year. In my view, this is mostly due to productivity improvements based on technological advancements and innovation. We need to keep abreast with new technologies and use relevant ones to our advantage and our workforce will need to be increasingly more agile and adaptable.
Ng: The key to succeeding is to grow sustainably. This market is notoriously out of whack with reality with many foreign firms subsidising Asian and China experiments. New firms come and go with every cycle. The economics here with the high rent can be brutal but the economics here work the same as everywhere else. Firms too often have big dreams and short memories.
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