While it may be an oversimplification to say that there has been a certain inevitability to Shearman & Sterling’s decline in recent months, that the firm’s losses should lead to Cravath, Swaine & Moore’s inaugural foray into English law is a coup even the most clued up of pundits could scarcely have foreseen.
Coming as they did from a venerable Wall Street institution which, while having had a London office for some five decades, has never ventured to hire a single English law practitioner, the hires of buyout partners Philip Stopford and Korey Fevzi from Shearman prompted a wave of speculation when they first hit the industry press in March.
Was the white-shoe stalwart on the brink of setting up a full-scale English law practice? Some aspiring lawyers on the market certainly hoped so, with speculative enquiries to recruiters increasing in the wake of the news.
However, now the dust has settled, the prevailing market view is that, barring the odd strategic addition to the London offering, the hires are not indicative of any substantive recruitment drive – Cravath’s English law offering will remain small, and focus solely on leveraged finance.
‘Cravath is an uber-conservative New York firm with only one other US office’, says Scott Gibson, founder of recruitment firm Edwards Gibson. ‘It has fewer than 100 partners all in. It is unlikely that it will expand its English law capability much beyond its core lender-focused finance offering anytime soon.
‘Very simply, it is harder to make money in London than in New York. And Cravath will not want to dilute profits by taking too many risks – especially in an uncertain market.’
Siobhán Lewington, managing director of legal recruiter Fox Rodney, shares this view. ‘We understand that the Cravath hires are pretty contained.’
Cravath’s decision to make its English law play in private equity highlights the enduring importance of PE in London, in particular for US firms. ‘Private equity is such a global phenomenon’, says Proskauer London office head Mary Kuusisto, in discussion of the wider London market. ‘London is a big part of that, and I think it will continue to be a big part of that.’
Crucially, while Cravath’s hires come after the private equity market has begun to recede from its high-water mark, few London partners at US firms see a significant slowdown on the horizon, and the lateral hiring market remains active.
According to Fox Rodney’s report, 2022 saw 16 London hires in private equity – down from 21 the previous year, but still above 2020’s figure of 14. Of these, 12 went to US firms, with three going to other international firms and only one to a UK firm.
‘Things started to slow down around Q4 of 2022’, explains Kuusisto. ‘But now it’s picking up, and from what we understand from our clients, that’s going to continue, and the market is going to become more robust.
‘Institutional investors generally do not have the flexibility to look at the market and say, is this the right time to invest? They might adjust at the margin, but they try to invest in every vintage year, and that keeps the private equity market active.’
The snowball effect
Cravath’s gains, however conservative, are still a drop in the ocean compared with Shearman’s losses on the back of its merger talks with Hogan Lovells, and their high-profile collapse.
The early months of 2023 saw a wave of departures crash over the firm, with four London partners swept away in January and February alone. Less than a week after the merger was called off in early March, Shearman named New York-based litigator Adam Hakki as its new senior partner, to take over from incumbent David Beveridge before the end of the year.
It is in some ways difficult to see what Shearman could have done differently to stem the flow of departures. Exits at this scale and rate can snowball. And firms caught up in such an avalanche are not blessed with an over-abundance of options. Do too much, and you risk looking panicked. Do too little, and you risk looking complacent. Neither posture is likely to encourage wavering partners to remain.
‘The Shearman issue has been brewing for years’, an established recruiter says, ‘and the next month or two are crucial. We understand that the firm is currently pursuing a standalone strategy and the partners we’ve spoken to want to see how that plays out over the next couple of months.’
As always in the legal industry, timing is everything. Many point to Shearman’s late arrival to the PE party as one of the key reasons for its financial struggles.
‘Unlike many of its peers’, Gibson remarks, ‘Shearman did not invest in transactional private equity, and so missed out on the highly profitable private equity boom.’
Fevzi and Stopford’s departures were arguably particularly damaging to Shearman, even more so given private equity’s status as a practice area in which individual lawyers can bring clients with them to new firms with unusual ease.
Furthermore, as Kuusisto notes, it can be an especially challenging area in which to build expertise. ‘It’s very difficult for law firms to break into the PE transactions market. There’s market knowledge that’s very difficult to learn. It’s not in any book, so you have to acquire it through experience and market practice. If you want to break into that market, you need to hire people who have experience.’
Most hiring partners agree that the relative dearth of buyout stars on the move means that they will recruit opportunistically as Cravath did, with a view to being fully-stocked when the market bounces back.
Meanwhile, the market waits with bated breath for signs of a transformational strategy from Shearman in London, and to see what, if any, major impact Cravath’s big play will have in the City.