Linklaters' expertise in retail structured notes is unlikely to be called into question. Having already advised 23 out of the 30 retail structured notes issuers in Hong Kong - one of the busiest structured products markets in Asia - the law firm has designs on the growing structured products market in China, and poached Chin-Chong Liew and his team from rival Allen & Overy earlier this year to help it tap the Chinese market.
Following Liew's appointment, Linklaters advised Lehman Brothers and Hua An Fund Management on the establishment of China's first Qualified Domestic Institutional Investor (QDII) fund in May. Hua An was the first asset manager in China to be granted the QDII status.
The QDII scheme, launched in April, allows retail banks, insurers, fund management firms and securities houses in China to raise funds in foreign exchange or renminbi and invest in overseas securities. Many of these funds invest in structured products. "QDII is probably the dominant way for investors in China to invest in structured products now," says Liew, who is Linklaters' Hong Kong-based head of derivatives and structured products, Asia excluding Japan.
The Hua An International Balanced Fund, launched in September, invests in a USD-denominated principal-protected structured note provided by Lehman Brothers. The fund is a Chinese domestic fund managed by Hua An. The note is linked to the performance of a variety of asset classes, including fixed income, global equity, real estate and commodities, all managed by Lehman Brothers Asset Management. The minimum investment in the five-year fund is US$5,000. As Structured Products went to press, the fund had already raised US$100 million, according to Liew.
As more countries in Asia open up to the retail distribution of structured products, issuers have turned to Linklaters for advice on establishing new note programmes.
Last year, Singapore's regulator, the Monetary Authority of Singapore (MAS), introduced changes to provide tailored disclosure requirements to cater for offers of retail structured notes.
After advising Merrill Lynch on its retail note programme in Hong Kong, Linklaters Allen & Gledhill, a joint venture between Linklaters and law firm Allen & Gledhill, went on to advise the investment bank on its first retail principal-protected equity-linked note, launched in Singapore in October. "Quite simply, Linklaters is the leading derivatives law firm," says Heman Tsang, Hong Kong-based director, legal and compliance at UBS.
Linklaters' knowledge of structured credit is also evident. In 2004, the firm advised Development Bank of Singapore (DBS) on the first retail transaction of equity default swaps in Hong Kong.
"We have advised on cash and synthetic collateralised debt obligation structures involving a variety of underlying assets, including bonds, loans, funds, credit default swaps and equity default swaps," says Andrew Malcolm, head of Linklaters' derivatives practice in Hong Kong.
The structured credit deals that Linklaters has worked on include both static and managed deals, with the management ranging from lightly managed, and self-managed structures to fully managed, and third-party managed deals.
As credit has become increasingly popular as an asset class among retail investors in Hong Kong, Linklaters has found itself working with JP Morgan and DBS on their credit-linked retail notes programmes. DBS has issued approximately 30 series of credit-linked notes to the retail market in Hong Kong.
Few law firms in the region have the capacity to initiate dialogues with the regulators in China, but Liew is credited for his knowledge of the development of derivatives and structured products in China, which is a new market for many financial institutions.
Why Linklaters won
Issuers contacted by Structured Products were impressed with how Linklaters responds quickly to innovative structures and new ideas. There are few law firms in the region that can match Linklaters' know-how in the documentation of complex derivatives transactions in both the retail and institutional spaces.