The law firm’s Hong Kong office has been hurt by intra-office affairs

How the wheels came off Kirkland & Ellis’s attempt to conquer Asia

Kirkland & Ellis plundered the senior ranks of rival law firms in Hong Kong, peeled off work advising the world’s largest buyout groups and prioritised China over other countries.
The aggressive push over the past decade turned Chicago-based Kirkland into one of the largest global law firms in Asia, with 115 lawyers and 39 partners.
But in the past 12 months, the wheels have come off, according to current and former staff and other people familiar with the situation. Sexual affairs between some staff sparked an internal investigation that probed partners’ behaviour during client events. The return on investment of the Asia growth strategy is also being questioned.

As it played catch-up, Kirkland launched a lightning raid in 2011 of eight senior corporate partners from three of its biggest rivals, including Nicholas Norris, who was poached from Skadden and became the centre of Kirkland’s Asia funds practice. Norris helped to prise away private equity firms from rivals such as Simpson Thacher & Bartlett, which enjoyed a near monopoly on big KKR and Blackstone deals.
In 2017, Kirkland lured another Skadden star, Daniel Dusek, who led the firm’s work on the $8.7bn take-private deal of China’s largest online classifieds marketplace, 58.com. This year, it recruited China M&A veteran Peng Yu from Ropes & Gray, whose key clients include Jack Ma’s Alibaba, and Brian Ho, who previously ran the corporate finance division at the Securities and Futures Commission, the Hong Kong financial regulator.
“From a relatively late start, Kirkland did a good job catching up,” said a partner who left this year. It quickly overtook its peers, focusing on hiring in its private equity practice and the business lines that supported it, such as debt finance, capital markets and restructuring.
Key to the past decade of supercharged growth had been bringing to Hong Kong Kirkland’s “eat what you kill” pay model, which rewards performance over hierarchy, to attract fiercely competitive star lawyers. Lavish client entertainment, a global tactic of Kirkland, proved particularly successful in Hong Kong, where the Chinese notion of “guanxi” prizes close personal relationships in business, and where conducting deals at private clubs or on corporate pleasure cruises — known as “junks” — is still the norm.

Kirkland advised on 12 deals worth $3.5bn in Asia in the first half of this year, and nine deals with a similar value in the same period of 2021. Its work was dwarfed by Simpson Thacher & Bartlett, which holds a leading relationship with private equity giant Blackstone in Asia and advised on deals worth $21bn in the first half of 2022, and by Latham & Watkins, which advised on deals worth $14.7bn.
Kirkland is still considered the “number two” option for some of the world’s largest funds in Asia such as KKR, Carlyle and Blackstone, according to some of the firm’s partners. One described the strategy as being “diversified”, meaning its key relationships were spread across several buyout groups and the firm was not “desperately trying to maximise our revenue”.
“The secret sauce of our global success is doing a lot of private equity deals that aren’t necessarily the biggest deals, but the clients pay and the deals are complicated,” the person added. “Rather than doing a $10bn deal which is straightforward and making $500,000, we do the $100mn deals where they pay $5mn.”
Like all large US corporate law firms, Kirkland does not break down its revenues and profits by region. Partners at the firm said that it prefers to measure its financial performance by sector: more than three-quarters of its fees globally are deal-related.
The Hong Kong office is profitable, according to several people close to it, but the Asia hub, like its Europe offices, is dwarfed by Kirkland’s immense US practice, where its biggest mandates are typically corporate bankruptcies. The firm’s single global balance sheet means its Hong Kong partners benefit from this success.

But they are also operating in increasingly uncertain waters. Kirkland is heavily exposed to China; unlike most of its rivals it does not have offices in Singapore, Seoul or Tokyo. And now, just as some of its biggest clients are forced to pull money out of China amid escalating geopolitical tensions, Kirkland’s Hong Kong office has to prove its efforts have been worth the costs.
“The problem for Kirkland in Hong Kong is . . . they may be profitable but proportionately it is so small,” said one of the former partners, who added that “even in our strongest billing year, where we billed tens of millions” the office only reached number nine in the firm’s list of highest-earning global assignments.
Another of the firm’s former partners said: “Ten years is a long time, [the leadership] is no longer seeing it as an investment, they want to see results.”
Global law firms’ Hong Kong partnerships

Rank	Law firm	Hong Kong partners
1	Mayer Brown	64
2	Baker McKenzie	51
3	Kirkland & Ellis	39
4	Linklaters	34
5	Clifford Chance	31
6	Reed Smith	28
7	DLA Piper	26
8	Allen & Overy	25
9	Stephenson Harwood	23
10	Ashurst	21
10	Latham & Watkins	21
12	Herbert Smith Freehills	19
12	Freshfields	19
14	Hogan Lovells	17
14	White & Case	17
Data is for 2021. Source: The Lawyer