A leading legal journalist had some interesting things to say about where litigation finance has been and where it is going. Ashby Jones, chief of the Wall Street Journal’s law bureau, recently offered some observations on what he has seen from litigation finance and on how he expects the field to develop.
As many observers have noted, investment in litigation has been growing at a rapid pace worldwide. According to research by Vannin Capital, there was between $800 and $900 million invested in litigation in 2016. But this amount equals just 4 percent of all the money spent on litigation globally, leaving tremendous room for growth. Having grown at an annual rate of around 40 percent between 2012 and 2106, and it is estimated to continue growing at a rate of 20 to 30 percent over the next few years.
Similar increases have occurred in the number of firms involved in providing funding. Investments are now being made both by specialized litigation funding firms and by hedge funds. And no wonder: litigation finance investments have outperformed investments in every other asset class over the last year and a half, or so.
The overwhelming majority of this growth has occurred in the tradition form of litigation funding, which involves commercial, single-case, plaintiff-side funding. Thus, the greatest amount of room for growth comes in other kinds of arrangements, such as funding cases on the defense side. In defense-side funding, an investor would help an enterprise manage its risk from a variety cases in which the enterprise was a defendant. But Jones notes that these arrangements have not yet taken off because minimizing losses is not as lucrative as profiting from large recoveries.
Jones also pointed out that there is promise for investing in secondary market for litigation finance. A secondary market arises when one funder buys a claim from another funder, perhaps after the claim has made it to a certain point in the litigation. As a means of managing their own risk, large funders have already started to sell an interest in some of their cases to smaller funders. The growth of such a secondary market could expand the pool of funds available from both large and small investors alike.
Keywords: litigation finance, third-party litigation funding, investments, secondary markets
Work Cited: David Lat, 4 Questions about the Future of Litigation Finance, Above the Law (Sept. 24, 2018) available at https://abovethelaw.com/2018/09/4-questions-about-the-future-of-litigation-finance/