Free Trade Zones

There’s no magic in the ‘magic circle’ as UK firms plan to expand into Asia

In recent years, a striking consensus among Allen & Overy, Freshfields Bruckhaus Deringer, Linklaters and Clifford Chance is the desire to move away from the Magic Circle company brand, an informal 1990s term that describes the the most prestigious law firms based in London.

“An international law firm” or “a global practice” is now a more apt description, say firm leaders.

“We are no longer called Magic Circle,” said Vicky Liu, managing partner of Allen & Overy in Hong Kong and co-head of the firm’s banking practice. “Ten or 15 years ago, you could say we were part of the Magic Circle. But in Asia, this term does not resonate in all our markets. »

In fact, the “Magic Circle” brand has become a bit of a liability. This runs counter to the firms’ ambitions to be considered global law firms, both as they strive to enter the US market and as they expand into Asia. In Asia in particular, as the market faces myriad geopolitical pressures and a changing market, companies are looking to expand further in Southeast Asia or dig deeper in China.

For some time, the Magic Circle label is no longer a selling point in Asia and has no bearing on companies winning business. In fact, Freshfields managing partner for Asia, Tom Ng, believes the label has only led to one consistent result for companies that have traditionally been part of the group: Allen & Overy, Freshfields, Linklaters, Clifford Chance and Slaughter and May. This has made them targets for talent poaching.

“We think it’s because of this branding that we’ve been victimized more than other firms,” ​​Ng said, noting that his lawyers who specialize in capital markets, mergers and acquisitions and corporate finance leverage have been particularly attractive to competing firms. “These three regions were the hottest and almost all of those who left went to American companies.”

In Asia, British businesses have always faced a wide range of competitors, but in recent months, competition with U.S. law firms in life sciences, technology, private equity and capital markets has become much more pronounced. The rivalry also led to a real poaching war. Dozens of seasoned lawyers have left UK companies have joined US practices over the past year. Salaries for newly graduated lawyers have become unsustainable, pushing firms like Allen & Overy to Draw the line.

USA in their mind

The desire to be recognized as a global law firm would be a pipe dream if it weren’t for the fact that these big UK firms are finally competing in any meaningful way in the US, the biggest market legal world. But it took them a long time to come up with a game plan. While they previously sought forays in the United States, it is only in recent years that they have made substantial investments there. Allen & Overy has over double its US partners have been around for three years and now have offices in Boston, Los Angeles, Silicon Valley and San Francisco. Freshfields, Clifford Chance and Linklaters also attacked their American rivals to find lead partners.

But their breakthrough into the US market did not happen in a vacuum. Much of their growth in the United States is tied to Asia, regional leaders say. Despite trade tensions between the United States and China, the long-term business opportunities are impossible to ignore. And US companies are showing increasing interest in the rest of Asia, a factor that is also key to growth.

“The connection between American and Asian practices is going to be very, very critical. Going forward, we expect a lot of expansion, new partners and headcount growth in Asia with qualified partners in the US, said Ng from Freshfields. “We expect much of our own growth to be centered in the United States.”

Indeed, Freshfields recently hired a US securities partner howie farn of Kirkland & Ellis in Hong Kong. Linklaters also brought in a former US private equity partner of Kirkland, Xiaoxi Lin, in Hong Kong. And in 2020, Allen & Overy hired Hong Kong-based White & Case partner Tess Fang, who focuses on US-China private equity and M&A transactions.

Even for Linklaters, which has been less aggressive in its US expansion, maintaining momentum in the US has become a strategic priority.

“In the United States, we play a slightly different game because we don’t have institutional relationships. It’s not about whether or not we’re the best in the United States, it’s unlikely,” Liu said. “But often when an American company has closed a deal in front of us and they have an institutional investor looking for help in Asia, our deep local knowledge here and standard of execution means we’re more stronger than any of our competitors.”

Coverage in Singapore

So far Allen & Overy, Clifford Chance and Freshfields have released their revenue and profit figures for the past financial year. Clifford Chance, which has five offices in Asia and two offices in Australia, said 17% of its global revenue comes from its Asia-Pacific operations. Linklaters, which has not yet released its financial statements, told Law.com International that its revenue contribution in Asia was more than 15%. The others declined to provide a breakdown of their income in Asia.

The biggest growth areas in Asia over the past year were similar for businesses. Most were busy helping clients raise capital and transition their businesses with environmental, social and governance (ESG) principles in mind. The effects of the COVID-19 pandemic have been a catalyst for major restructuring and insolvency cases which have also generated a significant revenue stream. Their client sectors are also similar, with most work focused on advising financial investors and sponsors, as well as clients in the life sciences and technology industries.

But like global markets elsewhere, the pandemic and geopolitics have hit Asia hard. In Greater China in particular, businesses are being forced to deal with nuanced risks and challenges. The probable radiation Chinese stocks from US stock exchanges will further exacerbate trade relations between the two countries. Greater China’s unwavering zero Covid strategy coupled with Hong Kong’s difficult political situation has also triggered an exodus of people.

The legal sector has seen its clients – mainly financial institutions and international conglomerates – uproot entire business units, moving them to Singapore. Western investors, too, are increasingly looking to Southeast Asia for investment opportunities. Allen & Overy, Linklaters, Freshfields and Clifford Chance responded accordingly by increasing their workforce in Singapore. American companies have also made inroads in Singapore.

“We also plan to focus on Singapore, not just as a hub to serve Indonesia and Malaysia, but for the wider Southeast Asian market,” said Freshfield’s Ng. “We certainly have plans to develop more resources there and build the strength of the Singapore office.”

Freshfields has the smallest number of staff in Singapore, with 22 lawyers including seven field partners, a fraction of the number the other three firms have in their Singapore offices. In fact, Freshfields only relaunched in Singapore in 2012 after it first closed in the city-state in 2006.

But Ng said that doesn’t put the company at a competitive disadvantage.

“We see ourselves more and more as competitors to the major American companies in this world rather than traditional Magic Circle competitors,” he said, demonstrating how little the Magic Circle label means in the region. “And if you look at American law firms in Asia, their footprint is more similar to ours.”

In China, for China

For Slaughter and May, the most conservative of the Magic Circle companies, an expansive workforce and footprint aren’t a priority. Over the past year, the firm, which has just four offices worldwide, including two in Greater China, has advised on mergers and acquisitions and capital markets transactions, particularly involving Chinese companies that have withdrawn from US markets. He has also seen growth in the area of ​​regulation and compliance as well as competition law.

The company hasn’t expanded its footprint since launching in Beijing in 2008. However, it was recently rumored that it is finally considering expansion into mainland China. The company declined to comment on the matter, although its Hong Kong-based partner Benita Yu confirmed that the practice will continue to focus on the Chinese market.

China’s latest “In China, For China” policy, which focuses on expanding the domestic market and reducing dependence on foreign markets, is likely to lead to further expansion or business combinations. companies with local law firms in China’s free trade zones in order to capture local market share. There were rumors that Freshfields was also considering a merger in China, in the Shanghai or Shenzhen free trade zones. Ng declined to comment.

Allen & Overy and Connections have already established joint ventures with local law firms in Shanghai. Free trade zone plans for the other three companies remain to be seen, Clifford Chance, for his part, has left the door open to such a possibility.

“In China, we are a market-leading practice, and we absolutely want to continue to maintain and grow it,” said Connie Heng, the firm’s managing partner for Asia. “Frankly, we’re constantly looking for opportunities, because you kind of have to have the right partner to tango.”