As the world awaits the roll-outs of the various vaccines at varying rates of distribution, variable according to region, optimism is returning to the Asian markets. In some minds cautious optimism is being favoured following the devastating consequences of the global pandemic and its ongoing fallout, others report a return to regular compensation distribution levels and bonus payouts thanks to belatedly strong deal activity as the world got to grips with the new reality. Talk of a “coiled spring” market reaction to the downturn may be overly optimistic but the skies are certainly bluer.
Amid this recovery has been an interesting trend in hiring in capital markets. Previous indications were that major firms outside the Magic Circle and established US players had all but given up on trying to make Hong Kong IPOs a viable source of profitable income, with US firms such as Davis Polk, Milbank, Shearman & Sterling and others allowing their practices to fade following key departures in recent years, finding increasingly competitive pricing too burdensome to factor into budgets and turning their attention to the perceptibly higher margins of, for example, private equity.
But recent hires may show a resurgent confidence in the sector. Kirkland & Ellis welcomed back Mengyu Lu after six years at Sidley Austin, while Sidley themselves made the surprising hire of Dominic Tsun who could be viewed as moving in the opposite direction if not for the fact that he had left Kirkland, and seemingly practice altogether, in 2017. Two swallows do not a summer make but these are sufficiently high-profile moves to catch the attention of the market and maybe encourage others to start betting big again on what was once a highly popular and lucrative sector.
Indeed, PRC firms have been ramping up capability in the sector for a couple of years now, enticing high profile names from seemingly disenchanted international firms to ride the wave of Hong Kong listings emerging from the mainland. Their more flexible pricing structures, cultural and physical proximity to clients, and vast and cost-efficient personnel resources all justify this willingness to attack the gap in the market and make a success of it. Indications are that those firms still with an eye on this market are seeing the sense in building up the staff numbers in Beijing in preference to Hong Kong, where overheads are smaller. Davis Polk’s extremely recent hire of Jason Xu from Freshfields is an example of this, and an indication that the firm remains committed to maintaining activity in HK IPOs, albeit with a different approach than previously.
Low margins will seemingly remain a factor on deals outside the top bracket and firms on the sponsor side were for a time prepared to take those on in an effort to penetrate the market or maintain visibility and prestige. Time will tell if this is a market blip or a major shift.