Funders unveil new cash and rising profits

Moloney: Market position strengthened

Litigation funders are continuing to thrive, with Balance Legal Capital raising a new $100m fund, and Litigation Capital Management (LCM) more than doubling its revenue and profit.

Balance’s new UK fund will be spent in the UK, Australia and other common law jurisdictions across all sectors and claims types.

It is backed by Balance’s unnamed anchor investor, which is increasing its commitment, and seven further institutional investors, located in the UK, US, Switzerland and Australia.

It said they included a university endowment fund, a European asset manager, and a global investment bank.

In addition to the discretionary capital pool, Balance has direct access to significant further co-investment capital from its investors.

Robert Rothkopf, managing partner of Balance Legal Capital, said: “These are difficult times but we feel it is nevertheless important to publicise important milestones…

“The interest we’ve had from investors is testament to the success of the business so far, the calibre of our team, and our ability to provide a great service to litigants and law firms.”

Mr Rothkopf is a former Herbert Smith Freehills lawyer and its investment committee is chaired by the firm’s former senior partner, Lord Gold. Herbert Smith also advised on the new fund.

Meanwhile, half-year results from AIM-listed funder LCM, for the second six months of 2019, showed that gross revenue jumped from A$11.7m (£5.7m) to £24.1m, with gross profit up from A$5.7m to A$12.2m.

As at 31 December 2019, LCM had invested A$34m in litigation finance projects as compared to A$27m six months earlier and A$14m at the end of the 2018 financial year.

The figures pre-date LCM closing a new fund of $150m, which it announced earlier this month.

LCM has three strands to its business: individual case funding – three Australian cases were resolved during the period – corporate portfolio funding, and investing in smaller disputes (typically insolvency based) through the acquisition or assignment of the underlying cause of action. It has invested in nine so far, out of 96 applications.

Chief executive Patrick Moloney said: “In the first half, LCM has continued to strengthen its market position in all of the geographies we operate. The development of our corporate portfolio strategy is gaining significant traction and already paying dividends in an area where we are a global leader in the provision of portfolio financing to corporate clients.

“With the first close of LCM’s $150m fund, we are well placed to significantly increase the portfolio of investments under management, enabling LCM to expand its business in all of the geographies in which we operate. The launch of the fund in parallel with direct balance sheet investments signals the transition of the business into a global alternate asset manager.”

Nick Rowles-Davies, executive vice-chairman of LCM, added: “Momentum in corporate portfolio opportunities has increased in the first half, with the fund now enabling LCM to invest in larger transactions which have previously been beyond the capacity of our balance sheet.

“This provides an important catalyst for the ongoing development of LCM’s corporate portfolio strategy.”

LCM entered the corporate portfolio market last year, funding two from 15 applications – a number that, though small, means it “outperformed its peers globally”, the company claimed.

In HY20, LCM resolved two disputes in its construction and building portfolio, out of the original portfolio of seven. LCM has invested total capital of A$4.3m, of which the two resolved disputes have generated revenue of A$8.6m, the 100% return being in line with the funder’s expectations for the portfolio.

The second is an aviation portfolio, with LCM providing a credit facility to fund the prosecution of a at least 38 commercial disputes.

It received 10 applications for portfolio funding during the period, with the potential investment size ranging from A$7m to A$36m.

Mr Rowles-Davies leads the London team, which drives the corporate portfolio offering, and the London office accounted for almost half of all group revenues in the six months.

LCM also revealed that it has entered into a second strategic alliance with a large international law firm, giving it a first right of refusal on all funding opportunities. Both firms are unnamed.

Through the first, which was signed in March 2019, LCM has received 30 applications and was the source of the aviation portfolio.

The second alliance has commenced on a trial basis in Australia “and in due course consideration will be given to expanding the relationship globally”.

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