The area of litigation funding has been expanding rapidly behind the scenes for the last decade, while largely remaining out of sight of private investors.
The Covid pandemic has done nothing to quell demand among litigation funders; in fact there has been a significant increase of investment from institutions and family offices eager to capitalise on the sector’s exponential growth and low correlation to world events.
In 2019, publicly traded Australian litigation finance firm IMF Bentham merged with Amsterdam-based competitor Omni Bridgeway, forming a company with more than $1.5 billion in combined capital. This strategy paralleled that of Burford Capital, another large, public firm that acquired competitor Gerchen Keller Capital in 2016.
Both of these significant deals reveal a strong indication that institutional investors are extremely bullish on litigation funding as an investment class. Here we take a look at why that is.
Litigation Funding Market Set for Greater Transparency in Europe
Last year, international law firm Brown Rudnick launched the Litigation Funding Working Group (LFWG), an umbrella organisation bringing together an array of industry stakeholders, including litigation funders, insurers, large institutional litigants and legal counsel.
The LFWG takes inspiration from the Loan Market Association model and accordingly a key purpose of the LFWG is to develop and promote a common standard of documentation, and in doing so to promote the expansion and development of the litigation funding market in the United Kingdom and Europe.
This means that litigation funding as an asset class is rapidly evolving and in the process, providing more opportunities for investment among private investors. It is also a solid indication that the sector is expecting strong growth, making the time extremely ripe for investment.
FOMO Extends to Rising Number of Class Actions
One of the main drivers of demand among litigation funders is the rapid rise of class actions, lawsuits that are filed by an individual on behalf of a group.These kind of largescale legal cases provide the best opportunities for litigation funders and recent developments in the UK have piqued investors’ interest internationally, yet also come with a high reward/risk ratio.
The emerging sub-class of non-contentious, precedent based consumer litigation may seem boring in comparison, but the simple nature of the cases and the risk mitigation steps undertaken, has made this a swiftly growing sector for the much lower risk profile for what is still reasonably high potential returns.
In December 2020, the UK’s Supreme Court allowed a case to go ahead against Mastercard for allegedly causing retailers to overcharge essentially all resident UK adult consumers for 15 years from 1992 by setting anti-competitive fees.
What this means is that there are around 46 million British adults who are now set to be involved in a £14bn lawsuit against Mastercard that will represent Britain’s biggest ever damages action. This is again an example of a win/lose case, whilst the recent developments in the Plevin sector further amplifies the other side of the coin with precedent based cases. So what happened in Plevin?
Potter vs Canada Square Ruling Adds Momentum
A Supreme Court ruling earlier this year which found in favour of Mrs Potter who made a claim against extortionate commissions (around 95%) charged by Canada Square, also underpins the rise of the bulls in the precedent-based litigation funding sector.
The decision is expected to open the floodgates for additional claims on PPI and other financial products that have included excessive commissions. This is a dynamic that has caught the eye of funds and family offices eager to participate in what is very clearly a rapidly growing investment market.
Precedent-based leads the way
Boring in not often seen as a profitable approach, yet in the case of litigation funding, this could not be any further from the truth. The ability to almost 100% certain of an outcome, andknow from the outset the value of the case and the fees, makes precedent-based consumer litigation an easy to model sector for investment. The precedent hands down the decision for the lower courts to follow, and also sets the parameters for calculating the value of damages per case from the outset. This then allows a funder to have a clear handle on costs, income and profits before committing. This is perhaps one of the reasons why the leading funder of Plevin cases in the UK has now reached the 50,000 cases funded threshold with no indications of slowing their pace.
Zero Correlation an Appealing Factor for Investors
Perhaps the most significant reason behind rising investment in litigation funding is the fact that the sector has no correlation with any other asset classes. When the economic landscape is turbulent, you want to be sure that your investments are not influenced by other market movements, particularly when the consequences can be devastating.
There is also the additional security of class actions being led by legal precedents. This means that when a decision has been made on one case of a particular type, it opens the doors for other similar cases to be ruled in the same way and invariably, without contest. This kind of surety is rare in any investment sector which is why it continues to be attractive to funds and family offices.
If you would like to find out more about how you can invest in the high-growth market of UK litigation funding, our product ‘Invest in Cases’ with Fuse Legal will be of interest to you. Click HERE or call us on +44 203 355 1178.