Nobody Knows Litigation Finance Size, but It’s Not $85 Billion

Omni Bridgeway, which merged with IMF Bentham in November, has used that number since at least August, and it was republished in an investor presentation last month. The figure roughly represents the total annual fees estimated to be paid to U.S. plaintiff lawyers. Paying plaintiff lawyers in exchange for a portion of their case’s rewards is, of course, what litigation funders do with much of their money. But the $85 billion figure may make members of the industry stand up and take notice. That’s because the industry spent only about 2.7% of $85 billion during a 12-month span that started in mid-2018, according to a Westfleet Advisors survey.

The debate around the size of the addressable market is another example of questions surrounding metrics in the litigation finance business. When Westfleet, a broker in the industry, released its $2.3 billion figure, Burford Capital called “obviously self-interested” the survey’s conclusion that the high levels of capital in the industry make it a “buyer’s market” for claim holders.

Burford, meanwhile, had aspects of its public company accounting attacked by short-seller Muddy Waters last summer. The trajectory of litigation finance remains a subject of disagreement even within the industry, and some executives bemoan marketing materials that set sky-high expectations for investors and lawyers alike.

To be sure, Omni Bridgeway’s U.S. investment officer Allison Chock said her company does not expect the litigation finance market will ever grow to the “full capacity” of $85 billion. Chock said in an interview that $2.3 billion was a “fair enough” estimate of how much money was invested in corporate U.S. lawsuits over 12 months.

“That figure will undoubtedly grow,” Chock said. “And I think it easily can become 10 times the current size. That said, it will never reach the ‘full capacity,’ most likely.”

Litigation funders shouldn’t even be trying to reach full capacity if that means financing all of the fees paid to U.S. plaintiff lawyers. That’s for the simple reason that plaintiff lawyers lose a lot, and litigation funders only make money on winning cases. Plus, bankrolling every plaintiff lawyer in the country would seriously damage the industry’s argument that is in the business of helping meritorious cases reach courtrooms rather than gambling on the odds.

Chock agreed that Omni Bridgeway “would not want to fund 100% of every dollar paid to a plaintiff’s law firm and experts” for several reasons, including that many cases are too small, too weak, or pursued by plaintiffs for reasons other than money.

“It’s an evolving industry, and people are still trying to understand the market opportunity,” said GLS Capital co-founder David Spiegel, whose firm raised more than $345 million in January. Still, the industry is very much in growth mode. Investors this year have already put more than $825 million in new capital into litigation finance firms.

Parabellum CEO Howie Shams last month as his company has raised more than $450 million for a new fund. Shams said the market has seen greater adoption from lawyers but cautioned against projections of tremendous future growth. “I’m not one of those people who think of this like it’s an infinite market,” he said.

Greenberg, LexShares’ founder, and CEO said it is difficult to determine the addressable market is for litigation finance. He said if deals are priced based on the returns from lawsuits, the number might be higher than the fees paid to plaintiffs. “One of the things I’ve called for repeatedly in our market is greater transparency,” Greenberg said. “I think it is beneficial to our market.”

Bill Farrell, the co-founder of Longford Capital, said it could take 10 to 20 years for the litigation finance market to account for 25% of the fees spent on plaintiff lawyers. “We are going to keep growing over several years,” Farrell said in an interview.

Litigation finance is undoubtedly carving out a bigger space, but nobody should view it as an $85 Billion opportunity.

Topics: Litigation Finance, Investment Strategies, Market Valuation

Work Cited: Joy Strom, Bloomberg Law, June 11, 2020

https://news.bloomberglaw.com/ip-law/nobody-knows-litigation-finance-size-but-its-not-85-billion