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Research Trends and Conclusions: Capital Markets 2011

August 2011
Capital Markets

With the benefit of over 14 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the capital market legal marketplace worldwide.

The general tenor of the feedback we received in the course of the research for the previous edition of this publication could best be characterised as ‘cautiously optimistic’. While activity levels were higher than they had been the year before, they remained significantly below the heights reached in 2007.

The experts we canvassed this year continue to be optimistic, and some of the caution has receded. Levels of equity capital markets activity have continued their rise into the first half of 2011, with Thomson Reuters reporting an increase of 27 per cent worldwide, the best results since the corresponding period in 2007. Equity capital markets activity totalled $412.2 billion during the first half, and global IPO volume totalled $111.2 billion in the same period, a rise of 18 per cent. The financial sector, materials and energy are all driving significant activity.

The story for the debt side is similarly positive, with Thomson Reuters reporting that overall global debt capital markets activity totalled $3 trillion in the first six months of 2011, 10 per cent higher than the first half of 2010. However, the rate seems to be decelerating, with second quarter global debt activity totalling $1.3 trillion, down 21 per cent from the first quarter of 2011.

The responses we received from lawyers in the course of our research painted a varied picture, with several describing themselves as “flat out” and 2010 as “the busiest year we have ever experienced”, others describing the market as being “as busy as it’s going to get” and some relating tales of a “terrible landscape for mainstream capital markets, there is very little work around and it is difficult to be optimistic for the future.”

Work levels fluctuated widely depending on sector and geographical location. Many respondents reported increased interest in Islamic finance techniques, and there was lots of talk about intensified demand for regulatory advice from clients, with compliance advice filling the hole left by the drop-off in structured products work for some lawyers. One summed up the situation by saying “there is a new third certainty in life; now it is death, taxes and regulation.” This new landscape offers opportunities and threats to clients and is a double-edged sword for their counsel: while there will be more high-level compliance work on deals, this will also act as a disincentive on certain types of transaction which are expected to decrease in number as a result.

Overall, there was a consistent feeling of uncertainty permeating the market worldwide as participants wait to see the effect of the new regulations that are being brought in, and this uncertainty is having a dampening effect on work levels overall. Other sources noted that the increasing M&A activity that many practitioners are seeing has not yet drawn the levels of capital market financing it has in the past. These factors, combined with the continued market volatility arising from various government debt crises around the world, mean that “lawyers can no longer plan 12-14 months in advance, now things tend to change by the week,” and it was difficult to find anyone prepared to make predictions beyond the end of the year. Uncertainty over political developments and regulatory changes continue to cloud the horizon. Although nominees said that “the pipeline of work should continue to be reasonably full unless there is another crisis in the next 18 months”, such smooth sailing is by no means guaranteed, as the stock market turmoil raging at the time of writing demonstrates.

LAW FIRM ANALYSIS

Our definition of ‘capital markets’ covers many different areas of specialisation. The lawyers selected for inclusion in the following pages have a proven track record in representing clients ranging from issuers and underwriters to investment banks and funds on all aspects of equity and debt transactions around the world. The world’s leading lawyers for IPOs and all types of equity issuance are listed here, alongside those who have pre-eminent experience in relation to debt offerings, structured products, repackagings, derivatives and securitisations.

With such a broad range of work covered, it can be difficult to draw a single conclusion about the level of work that lawyers are experiencing, and the multitude of challenges they and their firms are facing. However, closer examination of our findings over recent editions reveals some over-arching trends.

Number of lawyers and firms selected for inclusion over last four editions

The number of lawyers selected for inclusion in this edition as internationally recognised capital markets specialists has fallen since last year, as demand and work levels have tailed off. Furthermore, the number of firms with market leading individuals has also reduced in scope, and this year’s edition features experts from 51 countries – down from a high of 55 in 2009.

However, the key development we have observed over the past five years is a profound shift in the location of the lawyers we list, reflecting a similar change in levels of activity in the market over the same period.

Number of nominees from the US and Asia in the last five editions

In our 2006 edition we included 76 nominees from the United States, and the US was by far the largest jurisdiction in the publication. American lawyers and their firms were doing huge amounts of work, and were recognised by the market internationally for their outstanding practices. While our research identified world-class nominees from China, Hong Kong, Indonesia, Japan, Korea, Malaysia and Singapore in that edition, taken together they totalled only 46 listings overall.

The past two years have told a different story. As the level of activity in North America has subsided, Asia has been hotting up, and local lawyers are increasingly moving to the forefront of the practice worldwide. This edition marks the first time that the number of lawyers collectively selected from Asia has matched those from the US, as the rise in activity and consequent levels of recognition in the Far East is accentuated by the falling levels of work in North America.

The number of China-based nominees recognised by our research has grown from a single practitioner in 2006 to seven in this edition. The country has been left relatively unscathed by the recent financial crises, and with so many companies looking to secure access to China and Singapore the overall story is not so much one of recovery as of ongoing growth and can be interpreted as a demonstration of the emergence of Asia as the central player on the global stage. Lawyers reported a healthy mix of debt and equity work, with markets such as Indonesia and Malaysia also strong. However, even in this more optimistic region the future is uncertain. There are signs that China is aiming to cool its economy, and opinion is divided about levels of work in the future.

Leading firms in the last four editions by the number of partners selected

Linklaters has led our research in each of the past four years, earning a greater number of featured partners than any other firm. Other UK magic circle firms also have a strong pedigree in this sector, and US firms such as Sidley Austin, Cleary Gottlieb, Sullivan & Cromwell, Davis Polk and Skadden have also excelled in recent years. The graph above indicates that many of the world’s leading firms in this area have expanded the breadth of their geographical representation in recent times, and offer world-class legal representation in a greater number of countries than ever before. We feature Linklaters lawyers from Japan, Singapore and Hong Kong as well as countries across Europe and Latin America, and Freshfields, Clifford Chance and A&O also have Asia-based partners recognised by our research. The outstanding US firms have also increased the strength of their overseas practices in recent years, with Sidley’s representation developing from a solely US-based contingent in our 2008 edition to a recognition that extends to partners in Hong Kong, Singapore and London in this year’s edition.

The growing breadth of expertise the leading firms can offer reflects the demands of the clients for international representation from their firms as well as the growing importance of Asia and Latin America in today’s marketplace.