Value of UK litigation funders’ "war chests" hits £1 billion - up 42% in a year
Litigation funders ramp up case sourcing strategies to deploy the extra capital
The value of UK litigation funders’ ‘war chests’ has hit £1 billion, jumping 42% in a year, says City-headquartered professional services firm RPC.
According to RPC, assets held by the 20 biggest independent UK litigation funders now total £1.03 billion in 2016/17, up from £726 million in 2015/16. Litigation funders pay the costs of legal claims brought by businesses or individuals, in exchange for a share of any damages awarded.
The rise comes as private equity firms and hedge funds continue to invest in this increasingly popular alternative asset class. A key attraction for investors is that returns are uncorrelated to mainstream assets, such as equities or bonds, helping to properly diversify portfolio returns.
RPC adds that undrawn funding lines from private equity houses and hedge funds are thought to be many times the value of assets held on litigation funders’ balance sheets.*
RPC says that as more money is invested into the asset class, litigation funders are stepping up their search for potential cases to back, in order to deploy that capital.
Group actions are a major area of focus. For example, the recent litigation-funded group action against a major high street bank which was settled earlier this year with a £200m pay-out is likely to encourage further similar actions. The case involved allegations that shareholders had been misled over a rights issue in 2008.
Other group actions backed by capital committed by litigation funders include another major bank facing claims of loss of shareholder value following its takeover of a competitor; and a leading European car manufacturer over its use of ‘defeat devices’ to overcome emissions limits.
Other innovative strategies include:
- Arranging ‘exclusive access’ to litigation pipelines across specific practice areas - litigation funders are also keen to fund law firms’ entire streams of litigation in specific practice areas, such as all medical negligence or product liability claims.
For example, last month it was announced that a London law firm has agreed a deal with Woodsford Litigation Funding, focussing specifically on the energy and mining sectors
- Funding major arbitration cases – in addition to funding litigation through the courts, investment treaty arbitration seems to be an increasing area of interest. This concerns the resolution of disputes between investors and sovereign states involving international investment treaties or arising from different investment laws and contracts.
For example, Therium Capital and Calunius Capital are among those who have said that funding arbitration proceedings is now one of their key activities.
- Including asset tracing within their remit – litigation funders appear to be increasingly prepared to fund the costs involved in enforcing court decisions, for instance to track down and recover money from overseas. For example, Burford Capital has a global asset tracing team.
RPC explains that while assets held on balance sheets are just one measurable component of litigation funders’ financial assets, they are a good indicator of the growing impact litigation funding is having on the legal sector and the investment arena.
Geraldine Elliott, Partner at RPC comments: “Litigation funders want to deliver good risk weighted returns and a meaningful deployment of funds. That means a balancing off between the pressure to invest funds and the need to do proper due diligence on cases.”
“As the more obviously strong legal cases are getting multiple finance offers, the litigation funders are spreading their search into underserved parts of the market. They are also seeking more innovative origination strategies, such as securing a first look at cases from individual law firms.”
Top 20 UK litigation funders’ balance sheets jump 42% in a year, totalling £1bn
*Burford, for example, states that it in addition to direct investments that it holds on its balance sheet it has also committed US $1bn towards investments in litigation funding through investment funds that it manages over the last five years