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January 14, 2009 11:54 AM

LETTER FROM ASIA: Newcomers Confront Changing Reality

Posted by Anthony Lin

The jet lag flying from New York to Hong Kong is bad enough for a solo traveler. For a family with two young children in tow, it is an absolute killer.

"We slept through the night last night," says Yash Rana, sitting in his office in the I.M. Pei-designed Bank of China Tower less than a week after the fateful flight. "That was a treat."

Rana has moved his family halfway around the world so he can take charge of Goodwin Procter's new Hong Kong office, which in November became the Boston-based law firm's first overseas location.

Goodwin Procter is one of several U.S. and U.K. firms to launch Asia offices in recent months. Others include local rival Ropes & Gray, Ashurst, and Proskauer Rose. Dechert and Weil Gotshal & Manges opened Beijing offices last summer, mere months after both opened in Hong Kong as well. And Gibson, Dunn & Crutcher launched a Singapore office last May.

In most instances, the firms made their decisions amid rosy projections of continuing economic growth in the region. But the global financial crisis has made its way to Asia and newcomers must confront a different reality than the one they anticipated.

"Private equity investments definitely looked a lot better a year ago," acknowledges Rana, who specializes in representing funds seeking opportunities in India.

Whether the new arrivals will stay the course in the downturn is a much discussed topic among veteran Asia lawyers. Both the 1997 Asian financial crisis and the slump that accompanied the 2002 outbreak of Severe Acute Respiratory Syndrome (SARS) saw notable departures from the region.

Current conventional wisdom holds that foreign law firms with long-established global networks and well-developed strategies will endure no matter what; those less invested in maintaining a global presence will be the first to flee.

Anthony Root, the longtime Hong Kong managing partner for New York's Milbank Tweed Hadley & McCloy, says most firms that have been in Asia for more than a decade have already dealt with the complicated internal politics sparked by the enormous up-front costs--for little early payoff--that overseas expansion requires.

"There's a massive amount of sniping over international operations," says Root. "We've gotten over it. [The newcomers are] going to have to go through that process as well."

And they'll be going through it at a time when home offices in London and New York are facing unprecedented economic turmoil of their own. "If the downturn worsens at home and they're burning a few million in Hong Kong, which is easy to do, it's going to be tough," says Root.

For now the newcomers are largely staying optimistic.

"Of course, we would rather have a busy market," says Rana, "but the slowdown does give us the time to get to know the market."

The less-frenzied lateral market is one positive aspect of the downturn. Before the slump began in earnest, Asian markets were notorious for bidding wars that sent the pay of even marginal talents soaring. Now the picture is quite different.

"It's a good time to be looking for good people," says Rana, who adds that Goodwin Procter may have more flexibility in hiring going forward than firms of long-standing presence in the region, many of which bet heavily on capital markets work in recent years and are now saddled with large teams of idle lawyers.

Had it arrived earlier, Ashurst might have been one of those firms, says Robert Ogilvy Watson, the firm's first Hong Kong-based partner. The top ten London firm might also have immediately turned its attentions to expanding its structured finance practice, a traditional strength of the firm back home.

"We might have led with that," says Watson. "We've got clients that would have used us, but they're not really doing that now." He says finance practice remains part of the plan for Asia, as does work coming out of the firm's association with Hong Kong practice Jackson Woo & Associates and alliance with Beijing's Guantao law firm. Ashurst further underlined its hopes for the region by recently appointing its outgoing senior partner Geoffrey Green to head the Hong Kong practice.

But, in Ogilvy Watson's view, the timing of Ashurst's arrival also allows the firm to focus more on those areas which are still showing signs of life in Asia: mergers and acquisitions and, especially, private equity--a key practice area for the firm.

Widespread faith that private equity will rebound relatively quickly in Asia has perhaps been the strongest driver of law firm expansion in the region in recent months.

"While global buyout activity has obviously fallen off a cliff, our private equity clients in Asia remain very active," says David Patrick Eich, the senior partner in Kirkland & Ellis' Hong Kong arm. "It leads you to unexpected optimism about what's happening in Asia."

Kirkland, which opened its Hong Kong office at the beginning of 2007 specifically to service private equity clients, recently relocated two partners there from London and New York to further boost its private equity capabilities in the region. Last month the firm also brought aboard Xiaoyang Li, a senior private equity partner from Beijing's Jun He law firm.

The confidence felt by Kirkland and other firms rests on the record fund-raising by Asia-focused private equity funds in 2007. Much of that money has yet to be invested, and the downturn may tempt many fund managers to put it into assets that are far cheaper now than they were a year ago.

Eich says investors that were skittish and pulled out of the region when Asian markets plummeted in October are also likely to come back when they realize the long-term growth prospects in Asia far outstrip those in Europe and North America.

The near-universal recognition now of the economic potential of Asia, especially that of emerging giants China and India, is a major difference from previous downturns like the 1997 crisis. Firms, even those with little international experience, now regard an Asian presence as far more critical to their future than a decade ago.

"We're certainly new to markets outside the U.S.," says Rana, "but there was broad consensus behind this move. We're very committed. This is a long-term bet."

Anthony Lin is chief Asia correspondent for Incisive Media. Contact him at anthony.lin@incisivemedia.com

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