Updated: Feb 17
What a year! Protests in the streets, trade wars, global uncertainty – how was legal hiring affected?
After a very busy hiring market in 2018, the first half of the year started comparably more slowly, with the IPO market’s 25% drop on last year’s listing activity meaning that the bulk hiring spree that many law firms embarked upon into equity capital markets was completed and consolidated.
Issues stemming from US/China trade tensions, a weaker Yuan, and a clamp-down on China’s peer-to-peer lending have meant that many Chinese companies have been seeking liquidity from structured products and securitisation. This has meant that derivatives and structured finance teams in law firms have been actively hiring, and a number of firms have also sought to enter this space. This is a notoriously hard space into which to hire, and the teams lose a number of lawyers to the banks each year, so hiring in this area for law firms, banks, and the buy-side often require a global search.
An increase in contentious issues arising from the softer market has meant Litigation teams have been busy and have been hiring more at the mid-senior level, as well as holding out for that elusive, Chinese-speaking litigation partner with a portable book of business that so many firms currently desire.
Commercial IT, IP, and Data Privacy have been busier than usual, with some firms and in-house teams hiring specialist data privacy lawyers due to increased demand following the wide-reaching implementation of the GDPR. Employment practices have also been expanding, with some firms slotting data privacy into these teams, rather than into TMT practices. A number of in-house teams, especially in the technology sector, have also hired lawyers with these skill-sets.
Offshore (Cayman, BVI etc) firms, which have seen exponential growth over the past 5-10 years in Hong Kong, have mostly tempered their hiring, due to combination of uncertain market conditions, and uncertainty earlier in the year in regard to the Economic Substance laws. However, most continue to hire replacements and grow strategically at a more stable pace, including growing regulatory teams, in part to advise on the aforementioned new offshore legal framework.
Fintech / Virtual Banks / Chinese Securities – The disruptors!
2018 was one of the busiest in recent years for hiring into the international investment banks, especially in sales and trading, meaning that hiring into traditional banks was comparatively quiet for the first half of 2019, other than some expansion of internal litigation teams in response to a number of defaults in mainland China. However, we saw a significant number of lawyers moving from traditional financial institutions into FinTech businesses, including, to a lesser extent, virtual banks. This in turn meant the second half of the year was very busy for hiring into bank’s legal teams, who lost a number of prominent lawyers to FinTechs, especially those focusing on crypto-currencies and payment platforms.
This trend also opened up a number of key openings in law firms, as top performers at the Senior Associate and Counsel level moved into senior roles within FinTech businesses, often as a Head of Legal, or sole legal counsel, and this also saw one or two very high-profile Partner departures to GC roles in larger platforms.
Movement at Partner level continues to be busy, with over 90 Partner and Team moves happening in 2019. Corporate / Private Equity, Capital Markets and Litigation Partners made up the majority of moves, with a number of high-profile partners not being successfully replaced over the last 1-2 years. This has meant firms having to hire Counsel-level lawyers into Partner roles, and a few high-profile moves from the in-house teams of major banks into Private Practice Partnership. In the first half of the year, there was more appetite to hire relatively untested Counsel or junior Partners into these hard-to-fill openings, on the basis that many firms believed their platform was good enough to hire Partners without books of business.
There has been a change of attitude towards the end of the year, with some firms that previously displayed a higher risk appetite deciding they will now only hire Partners with a verifiable book, or not hire at all.
Firms continue to try to expand their non-contentious regulatory offerings with Partner hires, with many firms finding that the route to profit in this area is by serving funds and FinTechs, as opposed to major banks, for whom this work is not always billable. Start-ups in both fields increasingly need regulatory advice, especially if they are operating in an area where the regulations are evolving rapidly or are relatively opaque. Many of these are well funded and can grow into very valuable clients if their growth plans are successful, including follow-on capital markets work.
Impact of the Protests
The protests did not have a notable, immediate impact on legal hiring within the major international law firms, corporations and financial institutions, as international commerce and finance were less affected, and most large deals and cases take up a timeframe that is lengthy enough for a few months’ disruption to make little difference. We actually saw a significant increase in the number of search mandates in the second half of the year, compared to the first. A number of firms and institutions have reported lower volumes of such work due to the US/China trade war, but again, this has not had a notable impact on hiring across the board, although a few mid-market firms already affected by the trading environment put on hiring freezes once the protests escalated. Understandably, many businesses in the hospitality, real estate, retail, and aviation sectors have been more reticent to hire, and there has been a slow-down in hiring lawyers into Hong Kong-based conglomerates in these areas. However, many global businesses in these sectors have regional legal teams in Hong Kong, working on major, long-term cross-border projects, so some teams were still hiring right up until Christmas.
What has been evident, is a slow-down of hiring of junior-mid level lawyers into Private Practice teams, especially in capital markets and corporate. 2018 saw a hiring spree into these teams that was the foundation of one of the busiest legal hiring markets in the last decade. This has been far less evident in 2019, but firms have been hiring strategically at the mid and senior level, usually employing a search-based methodology to ensure hiring the best possible candidate.
Outlook for next year
The most prominent firms for equity capital markets are reporting reasonably strong pipelines for the year ahead, and the top firms for PE, M&A, leveraged finance, and restructuring are hoping for a busy year, as Private Equity houses look to target undervalued assets and distressed debt, after some heavy recent fund-raising. However, those focused on the mid-market corporate work in Hong Kong are preparing for a potentially tough year, with market sentiment still uncertain.
Most international Financial Institutions are starting the year with very few open headcounts in the legal teams, and there are indications of potential cuts in some banks. However, we can expect the usual movement post-bonus, including some continued outflux to the FinTech sector. Bonuses across the board are not looking great, however, most lawyers can probably expect to be flat, rather than significantly down. Chinese Securities firms and funds continue to grow in Hong Kong, and will continue to act as a disruptor, bearing in mind the attractive salary packages they are now able to offer. It remains to be seen whether FinTech in Hong Kong will continue to grow at the level seen over the past 12 months, as we have heard anecdotally that a number of proposed start-ups and investors have expressed concern regarding Hong Kong’s stability, meaning Singapore, and Shenzhen may benefit. It is hoped that InvestHK will continue their recent success in attracting this kind of investment into the territory, despite potential challenges thrown up by the socio-political environment.
It is in 2020 where we may see some slowdown as a result of the protests in Hong Kong, as during the 6 months of troubles there were inevitably a number of deals that were shelved, or new projects / office openings that were established elsewhere due to the unsettled environment. It is difficult to quantify how much effect this will have, if any, but again, it is the fiercely competitive mid-market work that is likely to be most affected. It has been true for some time that Hong Kong has too many law firms operating in the mid-market, and a worrying number of international firms with this focus are still not profitable in the region, despite significant tenure. Hence we have seen a number of team moves that have effectively dissolved some international firms here, as, despite the market being over-crowded in terms of firms, there is still a lack of sophisticated, international legal talent with the necessary Chinese language skills and cultural awareness. So, the Hong Kong legal recruitment market remains very buoyant for individual lawyers, but it is becoming less attractive as a destination for international firms to open an office, especially if aiming to provide a full-service offering. We have seen a number of successful market entrants who have focused very much on one or two specific niches, which is probably now the best route to Hong Kong market entry, short of merging with a large, established local firm, and the inherent challenges of integration.
On a more positive note, if the US and mainland China can agree more amicable trade agreements in the early part of the year, combined with the continuing opening of the PRC’s financial sector, this should hopefully lead to an increase in market confidence and activity. Hong Kong remains a vital hub for the raising of US dollars in capital markets for expanding Chinese businesses, and for the financing of Belt and Road projects. There is also the possibility of a ‘bounce-back’ effect, if the protests and trade tensions are both resolved, where hopefully we will see deals and proposals that have been on hold for 2019 activating in 2020.
Written by Ben Cooper
Ben is the managing director of Ashford Benjamin and is a Barrister by training. He has been providing Executive Search and career consultancy services to the legal profession for over 10 years.