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LCM eyes new fund after sharp rise in funding applications

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Moloney: Growth opportunity

Listed funder Litigation Capital Management (LCM) expects to have committed the $150m (£117m) it raised in March [2] by the end of the year as demand continues to increase at a brisk rate.

Its annual results, published yesterday, said the company can start building a new and larger warchest once 75% of its global alternatives returns fund is committed – it is currently at 61%.

LCM received 522 applications for funding in the year to 30 June, a 25% increase on the previous 12 months and currently has £47m of unallocated funding available.

With cash receipts from the completion of litigation investments up 14% at £17m, this all delivered profit before tax of £5.1m. The cumulative return on invested capital over the past nine years is 134%, with an internal rate of return of 78%.

As at 30 June, there were 23 direct balance sheet projects under management and 17 projects co-invested alongside the fund – compared to 29 direct balance sheet projects a year earlier.

Chief executive Patrick Moloney said that, since the impact of Covid-19 hit in March 2020, it has seen an increase in the number of applications and “a swift change in demand by corporate clients eager to explore funding their disputes off balance sheet”.

“This demonstrates that corporates globally are keen to allocate their financial resources towards core business as opposed to non-core activities such as legal disputes spending. We expect that position to continue until economies return to a state pre COVID-19.”

Mr Moloney went on: “LCM has seen significant growth in demand for investment opportunities over the period, further increasing our market opportunity. This has been demonstrated in the increased number of applications received, growth in portfolio investments, and the increase in capital committed.

“Our growth opportunity has also been further accelerated following the most significant development in the year; the establishment of LCM’s asset management division. This allows us greater pools of capital to invest, in turn providing greater returns.

“It also enables us to expand our global footprint, and we are pleased to have seen increasing traction across all our regions, in particular in the EMEA region, with a strong performance from the London office.”

In all, LCM has invested in 226 cases since 1998 and only lost 11, of which just six were adjudicated by a court or tribunal unfavourably. “To put it another way, LCM’s ability to predict the outcome of disputes is exceptional,” said Mr Moloney.

He said the company aimed to increase the percentage of applications converted to investments: “Through the education of both the market, which drives a better quality of application, and of investment managers, a higher conversion rate can be achieved safely without sacrificing quality.”

Longer term, he went on, LCM wanted to expand into new regions and increase the level of assets under management.

“We intend to raise further third-party pools of capital and to grow our asset management business. We also aim to increase the size of those funds and the portfolio of investments under management which in turn will increase returns to shareholders and diversify LCM’s direct investments.

“The increase in the overall size of the portfolios under management will smooth LCM’s revenues over time.”

LCM has been pushing its portfolio investment capacity – in August, global giant DLA Piper unveiled access to £150m of funding [3] for large-scale litigation and arbitration after announcing a non-exclusive arrangement with LCM, which is to work with DLA’s newly formed captive, Aldersgate Funding.

Then it agreed to finance [4] a portfolio of up to 20 construction claims brought by a subsidiary of an unnamed global building and infrastructure contractor in jurisdictions around the world, a deal which originated through LCM’s strategic alliance with Norton Rose Fulbright.

LCM’s share price closed down 3% today at 63.6p. It reached a high of 109p in April 2019 and a low of 48p in early March.