Listed third-party funder Litigation Capital Management (LCM) has raised $140m (£107m) for a new fund, which it said would “significantly” increase its ability to invest. Nine cases are already lined up.
The LCM Global Alternative Returns Fund marks its return to managing third-party funds, after it had focused on building a permanent source of balance sheet capital through the equity markets.
The plan is to raise a further $10m. The fund will provide 75% of each new investment, with the other 25% from LCM’s own balance sheet.
Its cornerstone investors include the large endowment of a US university and the asset management division of a large global investment bank.
LCM told investors: “Both have extensive experience of investing in the litigation finance asset class and entrenched rights to participate in future funds raised by LCM, demonstrating their commitment to LCM and also to the asset class more widely.”
Other unnamed investors include a further US-based university endowment, a Swiss-based fund manager specialising in investing in litigation finance, and a substantial European family office also with significant investment experience in litigation finance.
In addition to a 25% profit share from each investment, LCM will also receive 25% of profit on each investment as and when it matures over a “soft return hurdle” of 8%, and an outperformance return of 35% where the internal rate of return exceeds 20%.
LCM said the decision to hold a first close of the fund before all commitments were ready to be made was driven by a “strong pipeline of quality investment opportunities with which the fund could be seeded”.
These are nine single case investments with a total capital commitment of $33m. The terms of the fund give LCM two years to spend the money, and it expressed confidence that it would achieve this “comfortably.
Chief executive Patrick Moloney said: “The entry into this external fund provides a significant increase to our available capital and a boost to our investment capability, enabling us to broaden and accelerate the expansion of our portfolio with a view to ultimately delivering greater returns for shareholders.
“It also constitutes the first step towards LCM operating a funds management business. Indeed, future funds will be underpinned by the entrenched rights of our cornerstone investors.”