WHAT'S NEWS: Recent media reports have estimated the amount of funding available in litigation finance to be in the tens of billions.
The Financial Times recently featured an article on litigation finance quoting various funders on the amount of capital currently available in the market. Among the numbers cited were more than $13 billion for the UK market, and upwards of $90 billion for the global market. You may read the November 19th article (subscription required) here.
Our Reaction
These numbers are nonsensical, misleading, and we will buy dinner for anyone who
can prove them to be accurate. What these figures do signal - to the extent they have any value at all - is that global hedge funds have found their way into litigation finance. The only way to begin to reach these figures is to include much of the capital such hedge funds possess that is ultimately destined for other types of investments. This is, of course, silly.
What This Means
The good news for those seeking litigation finance is that - if only a portion of these figures are actually being ear-marked for litigation funding - there is now an abundance of capital chasing the relatively modest number of good investments (cases and portfolios) on the market. The real insight in this article is from Nick Rowles-Davies of the newly formed Chancery Capital. Our friend Nick is quoted as saying:
According to Nick Rowles-Davies, who founded Chancery in May this year, so much money is piling up that funders and law firms are having difficulty finding enough cases to invest it in. “The biggest challenge is deployment,” he said.
This means that those seeking litigation finance should now be shopping their opportunities to a number of different funders. As the number of funders - and the amount of capital available in the market - continues to grow, we can safely say it is now a buyer's market in litigation finance.
Further Thoughts
Investors are no doubt pouring money into the litigation finance market (a future post will explore why this asset class is so appealing to those seeking a decent return). What is less certain is the size of the addressable market for litigation finance - either globally or in any particular jurisdiction. While I would gladly wager that the global litigation finance market can't digest $90 billion any time soon (!), the questions remain how many good and sizable legal investments exist now, and how fast will the market grow? The short answers for most funders are: not enough, and not fast enough. With money burning a hole in their collective pockets, many funders face increasing pressure from their investors to deploy capital. Those seeking to purchase litigation finance can use this pressure to create competition among potential funders - and thus improve the terms and pricing of their financing arrangements. As the litigation finance market continues to mature - both in the U.S. and the U.K. - awareness of market dynamics and nuance will become increasingly valuable to our clients.