I feel a sense of optimism about Russian’s legal market that I have not felt since the dark days of the Crimean Crisis in 2014.
This may come as a surprise to commentators who regard deal volumes as the key measure of Russia’s health and prosperity, as it is an incontrovertible truth that Russian M&A has remained depressed over the last five years, in stark contrast to the global trend.
But herein lies my optimism. Put plainly, many Russian assets today are undervalued. In sectors ranging from retail to high tech, from manufacturing to infrastructure, Russia boasts some of the most capable and innovative private enterprises. Many of these have been overlooked by the global corporate and investment communities in recent years but there is a growing sense that we may be approaching a “tipping point” in the investment potential of Russia’s private sector.
I was privileged to co-chair the IBA “Mergers and Acquisitions in Russia and CIS” conference in November, and my optimism was widely shared by my fellow delegates, several of whom noted an increasing interest from European and US clients in investment opportunities in Russia. The strategic case is clear to see, as, while-state controlled players continue to dominate the corporate scene in Russia, the door is open to the inward investment of foreign capital to support the global expansion of our strongest home-grown enterprises.
And, inevitably, any uptick in M&A activity will first and foremost benefit Russia’s leading domestic law firms. In recent years, we have seen that both Russian and International clients prefer to use Russian firms, which understand the economic and political environment in which corporates are operating. Furthermore, the devaluation of the rouble has increased the cost of employing international firms, driving clients towards domestic advisers.
However, I believe that we may start to see the window of opportunity re-open for international law firms, after several years of stagnation. Those which have remained committed to Russia have taken steps to realign their operations to focus on meeting the needs of Russian clients and are well placed to advise on international mandates.
I welcome an increase in competition in our marketplace. It raises the bar in terms of access to the highest quality legal advice and it supports an inflow of capital from high quality international investors. This benefits not only of our legal profession, but also our wider economy.
The big unknown quantity is the impact of proposed reforms in the Russian legal market, with our government’s plans to merge the regulated and non-regulated parts of the profession under the umbrella of the Bar. It is still unclear how these reforms would be shaped and implemented, and the uncertainty may cause some international firms to pause and think about their Russian strategies.
Structural reforms in non-legal sectors, however, will doubtless increase the demand for legal services in a broad variety of areas. This will be of particular benefit to full-service law firms helping clients navigate their way through a myriad of complex circumstances, providing them with seamless advice through integrated cross-practice teams. In the case of my own firm, ALRUD, we are seeing particularly high demand for advice relating to data protection and IT security within our day-to-day M&A advisory work.
The other major driver of growth in our market will be Dispute Resolution. The recent approval by Russia’s Ministry of Justice of the Vienna International Arbitral Centre and the Hong Kong International Arbitration Centre as permanent non-Russian institutions will allow them to be designated by parties in certain types of Russian corporate disputes. We welcome these changes, which are likely to significantly increase Russia’s position in origination of international corporate-related disputes.
Perhaps most importantly, I hope that all of these positive factors will combine to reverse the recent decline in the number of lawyers in the Russian marketplace. There is evidence that the global firms are starting to recruit in Russia once again and while this will inevitably create some competitive tension with their domestic rivals, I maintain the view that good competition is good for the market as a whole. We need our brightest and best to choose a career in the law if we are to maintain the highest professional standards and attract inward investment into Russia. Writing from the perspective of a proud and independent Russian firm, we will of course compete vigorously for the best talent, and I remain confident that we can offer the best career path for budding young lawyers. Stronger competition for talent raises our game.
By Alexander Zharskiy, Partner, Alrud