Shearman & Sterling's announcement this week that it has acquired a Hong Kong law practice again is spotlighting an ongoing debate among leading Wall Street firms about whether or not to go local in the red-hot market.
Shearman has recruited Hong Kong-qualified partners Colin Law and Peter Chen from O'Melveny & Myers. Law, a veteran capital markets lawyer, had previously worked for U.K. firm Lovells before joining O'Melveny in 2006. He will serve as co-head of Shearman's Hong Kong Office, the firm announced Wednesday.
The move by Shearman to acquire local Hong Kong capability follows a year in which the Hong Kong market led the world in initial public offerings, raising $27.2 billion according to Dealogic. A few years ago, the large mainland Chinese companies driving the Hong Kong IPO boom might also have been expected to list in the United States. But such dual listings have become rare.
Matthew Bersani, Shearman's Asia managing partner, says such market trends have made it tough for firms practicing only U.S. law. Though such firms still often score major roles on Hong Kong deals because of the expected interest of U.S. institutional investors, Bersani says the trend in such instances is toward "one-stop-shop" firms. "In Hong Kong listing work, it's very rare now to see separate U.S. counsel hired," he says.
Shearman, along with London's Magic Circle and other top U.S. firms like Latham & Watkins and Skadden, Arps, Slate, Meagher & Flom, has long embraced the one-stop-shop model and built local practices around the world.
Other leading New York capital markets firms like Simpson Thacher & Bartlett, Davis Polk & Wardwell, and Sullivan & Cromwell historically have been wary of practicing foreign law. Doing so, such firms have argued, makes it harder to maintain a consistently high level of quality work. It also is typically less lucrative than practicing U.S. law.
But the buoyancy of the Hong Kong listings market has not been lost on such firms. Leiming Chen of Simpson Thacher says his firm has no current plans to go local but is paying attention to the market. There has been some movement to one-stop shops, he says, but the biggest, most important Hong Kong deals still typically see separate U.S. counsel hired. Moreover, U.S. IPOs for Chinese companies, though down as a proportion of the market, still are providing plenty of work, says Chen. "That will always be our bread and butter."
William Barron, the senior partner in Davis Polk's Hong Kong office, says his firm also has no current plans to launch a local practice in Hong Kong but allows that "any sensible firm has to at least be thinking about it."
To that end, Barron and other Davis Polk lawyers, along with lawyers from other New York firms, took the once-a-year Hong Kong bar exam in October. The task was undertaken to keep open the option of local practice. The Hong Kong Law Society requires foreign firms practicing local law to have an equal ratio of Hong Kong-qualified and foreign-qualified lawyers. Having U.S. lawyers who can also be counted as Hong Kong lawyers makes it much easier to meet this ratio requirement should a firm decide on local practice.
That's how Shearman is approaching it. Bersani and seven other lawyers from the firm took the October exam and are now awaiting the results, due in February. Meantime, Law and Chen technically will operate a separate firm with an exclusive relationship with Shearman. If all goes according to plan (meaning, if enough Shearman lawyers pass the exam), the firms will then merge later this year.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.