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Is litigation funding dead?

Deadman: Portfolio deals are the Holy Grail

Posted by Chris Deadman, director of operations at Litigation Futures Associate Invicta Capital Funding [1]

Have you noticed that ‘litigation funding’ is gradually being replaced by the term ‘litigation finance’? If you have, then you really ought to get out more, maybe take up a hobby or start some evening classes.

The reason funders (or financiers) are moving away from using the former term is that the industry is slowly waking up to the opportunities that its money can unlock. Commentators with more GCSEs than me are keen to point out that the potential of portfolio finance, i.e. funding across a basket of cases, has yet to be fully realised.

They are now talking less about single case investments and more about their money being offered to corporates and secured against pieces of suitable litigation. This is a departure from the usual model whereby their money is used solely to pay lawyers.

Another hot topic at the moment is portfolio finance. Portfolio deals are the Holy Grail for us because the risk of capital loss, provided the underlying basket of cases is sound and the lawyers know what they are doing, should be vanishingly small.

If your investments are properly structured, your portfolio should realise better returns than other asset classes with minimal prospects of doing your conkers. That’s the theory anyway.

The next 12 months will also surely see the creation of a litigation ‘fund of funds’, which is commonplace in the private equity and hedge fund worlds.

Funders who are struggling to deploy big chunks of investor cash on single-ticket cases will be offering their money to funders operating in different or specialised sectors of the market, e.g. small cases, volume matters, insolvency etc. This will create enormous opportunities for both parties.

The single case funding model is far from dead but you can expect many more iterations in the coming years.