The market of clients using litigation finance through choice rather than necessity – especially companies looking to offload their liability for portfolios of cases – remains “almost entirely unaddressed”, an AIM-listed funder has told investors.
It also claimed that established funders in the UK have been “slow to respond” to the changing market.
LCM’s annual report – following the results issued in September – said that such increase in competition as it had seen in the UK and elsewhere was confined to “single-case claims, where people are using litigation finance predominantly by necessity not by choice, and focused on specific market segments”.
But in the “discretionary part of the market”, especially corporate portfolios, there was “limited competition”.
Chief executive Patrick Moloney said this stemmed from there being only a small proportion of funders with the necessary “experience and capability in complex claims” to handle portfolio work, while “the addressable market is so large that competition is largely irrelevant at this stage of the market’s development”.
As a result, LCM has identified a “significant growth opportunity” in offering finance to well-capitalised corporate entities that currently fund their own disputes.
“LCM is observing an early, but encouraging, change in attitude from corporates globally as they recognise the value of using an external source of capital rather than shareholders’ funds.”
Nick Rowles-Davies, a figure well known in the litigation funding market and early mover in this field, joined LCM last year to help set up its London operation as it moved its listing from Australia to London.
LCM received more than 15 applications for corporate portfolio funding during its last financial year, accepting two of them.
Mr Moloney wrote: “Whilst two might seem a small number, it is a figure that represents more than any other funder globally and also represents a large number of underlying claims.
“The combined number of separate disputes comprising those two portfolios represent more disputes by number than our entire overall portfolio of investments.”
As at 30 June 2019, it had a portfolio of 29 projects under management and 64 “pre-qualified” pipeline projects.
Mr Moloney added that, while the UK litigation funding market has grown strongly in recent years, it was estimated that still only between 3-7% of cases were funded by significant litigation financiers, “providing huge potential for market expansion”.
He continued: “Whilst there are currently a number of litigation funders operating in the UK for the most part, since the market’s inception a decade ago, the market has been largely without significant competition.
“As a result, incumbents have been slow to respond to the changing market and have failed to initiate and explore new market opportunities. Rather than adapt their business models to the evolving needs of the UK market, they have in many cases focused on exporting their existing business model to new markets.”
Mr Moloney said that, as well as corporate portfolio work, LCM was also eyeing up the “small-case insolvency” market.
He said: “We see these as market sectors with strong growth potential and attractive financial metrics, and we expect the relationships we form through our presence in the small-case insolvency space will also lead to referrals for large claims, supplementing our share of more traditional parts of the litigation market.”