An investment strategy that funds lawsuits is expected to grow as more companies become involved in litigation during the economic downturn. If there is one thing that is almost always guaranteed in an economic downturn, it’s an increase in litigation. Businesses are going to sue businesses. Tenants are going to sue landlords, who will sue their tenants right back. Insurance companies will contest claims, and start-ups will try to defend their intellectual property from more established companies. Yet in this recession, one industry that was just getting started during the 2008 downturn has come into its own and is attracting wealthy investors looking for outsize returns.
Litigation finance is an industry with a few publicly traded behemoths, but it remains the preserve of private equity style funds that invest in cases, back law firms and act as financial intermediaries when settlements have been reached and the pandemic could be its time to emerge from its little known niche. Some of this will come from coronavirus related suits, like business interruption claims and lawsuits against landlords who do not fulfill their obligations to safeguard their buildings but a larger amount could come from litigation that arises when there is less economic opportunity and businesses begin fighting for what is left. Most of the litigation finance funds are set up to step in when one side is running low on money to continue a claim that could bring a substantial win.
“We have the wind to our backs in this unusual environment,” said Howard Shams, the chief executive of Parabellum Capital and an early practitioner in the industry. The market can deliver returns of 30 percent or more. The type of claims and the law firms that seek financing vary. But so, too, does the investor base, which includes wealthy individuals and families, as well as college endowments and sovereign wealth funds.
Litigation finance is not about encouraging more legal battles, fund managers, and investors say, but about supporting businesses and law firms that lack the resources held by the larger corporations they are often battling.
Topics: Litigation Finance | Coronavirus | Economic Downturn | Private Equity | Parabellum Capital
Work cited: Paul Sullivan | The New York Times | June 19, 2020