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NEWS & INSIGHTS

THE VIEW FROM RED BRIDGES

  • Andrew Langhoff

Trends and Trepidations in Litigation Finance

Updated: Jan 1, 2018

WHAT’S NEWS: A recent survey by the largest funder reported that 36% of U.S. law firms have used litigation finance. The survey also identified hurdles that law firms must overcome when pursuing litigation finance.

In its 2017 annual survey, Burford Capital reports that 1 in 3 U.S. law firms have used litigation

finance, and that growth in the use of litigation finance by U.S. firms is up 414% since 2013. The survey also looks at the barriers to using litigation finance (as recounted by those who have already done so), and found that in the U.S. the primary obstacles are: i) the perceived costs; ii) concerns about control of the underlying litigation; iii) the time required to obtain such financing; and iv) concerns about ethics. You can read the survey here.


OUR REACTION

Based on our experience in the market, the notion that one in three U.S. law firms has used

litigation finance seems considerably exaggerated. (Burford does make a disclaimer for the so-called “social desirability bias,” but makes no mention of the more obvious “participation” or “non-response” bias that is likely skewing the results.) Despite this quibble, there can be no question that the use of litigation finance in the U.S. is growing rapidly, and that the survey is directionally correct. What is perhaps more interesting – and should not be lost in the discussion of the headline number – are the reasons law firms continue to have some trepidations about using litigation finance.


WHAT IT MEANS

As a generally matter, buyers of litigation finance can take comfort in evidence of the growing use and acceptance of funding throughout the U.S. (indeed, the survey shows considerable growth in the U.K. and Australian markets as well).

More specifically, we find it significant that the primary hurdles to funding – pricing, time, and ethics (including control issues) – can be easily addressed with the assistance of an broker/intermediary.

As those who have done it know, obtaining litigation finance is not a straight-forward process, and it is extraordinarily time consuming. We believe that intermediaries (such as, unashamedly, Red Bridges Advisors) can play an important role in helping the market to develop further by directly addressing those concerns that are foremost in our client’s minds.


FURTHER THOUGHTS

One other figure in the survey caught our eye: More than 50% of U.S. lawyers who haven’t previously used litigation finance expect to do so in the next two years. While this number is likely another victim of the skewing we see in the survey’s headline number, we would be very happy to be proven wrong – and pleased to help those who are engaging with litigation finance for the first time.


And a final note – actually, a disclaimer – I was COO of Burford Capital from 2012-2014, and directly responsible for the company’s annual surveys for 2012 and 2013 – of which this current 2017 survey is the successor. I’m glad to see that the survey has been continued, and believe it remains the best available guide to the progress of U.S. litigation finance.