What to do down under has long presented a headache for the UK's magic circle firms, with varying approaches to the market splitting the group. Freshfields Bruckhaus Deringer says it has ruled out Australia for now after reportedly making several attempts to hire in the market, while Slaughter and May is sticking with its conservative roots and leaving well alone.

The other three firms have all dipped their toes in the region. Clifford Chance and Allen & Overy have both made small plays in Sydney and Perth which have largely remained out of the headlines, while Linklaters has chosen a different approach altogether, forming an alliance with Allens. The positions contrast sharply with the full financial mergers at Ashurst and HSF and also with the large-scale mergers that were the subject of discussions between several members of the group and Australia's leading firms in the past. Over the years, both Clifford Chance and Linklaters, for example, have held merger talks with legacy Mallesons.

The lack of merger activity suggests that the magic circle is keen to avoid diluting their profitability. It is also questionable how much of a boost an Australian outpost can provide for broader Asian work – particularly now, as Chinese investment into the country slows. Freshfields, for example, ranked first by value for Asia Pacific deals without a presence in Australia.

"I don't think the magic circle firms have an appetite for these big mergers in Australia," says one local partner. "Even if they had wanted to, some of the partnerships are frankly too big."

"Which strategy works depends on what you want to get out of it," says another partner. "Do you just want a presence or do you want to have a strong domestic practice which will survive on its own and not rely on instructions coming from offshore?"

A&O has probably been the most aggressive of the group, hiring a 14-partner team and carving out a specialist domestic practice in corporate, banking and litigation. Partners say the challenge for the firm lies in its relatively small headcount in a market where the biggest firms have approximately 150 partners and are full service, especially given the context of less than desirable economic conditions.

Indeed, A&O has already seen exits of four partners (including the country managing partner scheduled to leave at the end of the year) and the relocation of one to Singapore. On the other side of the coin, it has made just two promotions since it opened in 2010. This is despite comments that year that the firm wanted to reach 30 partners in the country in the near future.

However, in May last year the firm hired senior litigation partner Mark van Brakel in Perth from Corrs Chambers Westgarth, and in December it took on Herbert Smith Freehills' antitrust partner Peter McDonald in Sydney, leaving it with a total of six and 17 partners in the two cities respectively.

It admits to being cautious in its growth in view of the economic uncertainty in Australia, but says this has allowed it to avoid making redundancies.

"They are trying to run a model which farms out specialist work to other firms. That creates some tensions when you have clients who expect everything to be done in-house with the A&O badge," says a source close to the firm. "You've got to think they will increase the number of partners slightly. I don't think it makes sense for them to service the clientele they are doing with that number of partners."

CC is described as more "low-key and low profile", and the firm seems content with its limited Australian offering. One partner in the market says: "There are three things that matter with a merger: name, power and money. So for CC it made sense [to have a small presence]. Big mergers give the Australians the power to make decisions, dilute profits in London and change the name."

For Linklaters, there is still a possibility that it may merge with Allens, though partners remain doubtful. "I'll believe it when I see it," says one.

Others – including an ex-partner from Allens – fear that Linklaters may instead choose to end the alliance and cherry pick a handful of top Allens partners to run its Australian operations. They wonder where this might leave Allens, commonly dubbed the 'Slaughter & May of Australia'.

"I think Linklaters have managed to get a very good firm down here," adds the partner. "Allens is a terrific firm – but I don't understand what they get from the merger." Allens says it was never in the market for a merger, and that the deal is faring well, bringing an increase in referral flow and a good revenue stream.