The underground world of Litigation Finance (Now open to private investors)

The 2017 class action against Royal Bank of Scotland was one of the most high profile successful cases in the UK. This lawsuit fanned the flames of an emerging asset class, which is rapidly gaining traction, leaping from strength to strength. This action was financed through Litigation Finance.

If, like your fellow investors and financial advisers, you are keen to understand the dynamics behind litigation finance, why it’s mostly kept underground in investing and the opportunity it represents, I will explain to you in this article.

Litigation finance has been opened up to private investors.

This type of investment has the potential to return you a high yield on your original capital within a relatively short period, as little as 2 to 3 years, with an anticipated exit, a reasonable probability of success (>90%) and most importantly is entirely uncorrelated with traditional financial markets.

The biggest secret in investing is about to be blown wide open and you can earn returns up to 40% per annum.

Litigation finance isn’t new, it’s been around for nearly two decades, but it’s only now that private investors have been invited to invest in it, having previously been funded by hedge funds, private equity and other institutional investors.

And it is growing rapidly in the UK. There are estimates that the assets of the 20 biggest UK litigation funders reached over £1bn for the first time in 2017 (up a remarkable 42% from 2016).

Your next question will be: why now?

 

Why has the need for litigation finance arisen?

Well, as of 1st April 2013, the ATE (After The Event insurance) premium is no longer recoverable as part of the individual Claimant’s costs. Meaning that the private individual must now pay the premium out of his own resources, or via a litigation fund.

And there is clear evidence that there is a real need for people to access funds if they want to stand a chance of bringing a claim against typically a much larger entity, as typically the cost of legal action is prohibitively expensive.

Plus, not all law firms are able to take on cases with a conditional fee arrangement basis.

What is Litigation Finance?

Litigation finance, in a nutshell, is a third party covering the costs of someone else’s legal expenses, in exchange for a share of the damages received.

Why invest in Litigation Finance?

Besides the obvious large payout when a case is successful, what else is appealing about investing in litigation finance? What are the key reasons for its popularity?

  1. It is an uncorrelated asset – in layman’s terms: the monetary reward the claimant receives (when they win the case) has absolutely nothing to do with the interest rates set by the Bank of England or anyone else. What you receive in return is decided by the courts, irrespective of what is happening to asset prices in the wider economy.
  2. Given the enormity of the global market, the asset class is still in its infancy and there is no end in sight – translated means: the potential returns for investors are endless as there are no shortage of quality litigation cases seeking funding.
  3. Capital protected. (And this is the most important for you) Through our expert panel’s case selection process, we expect to achieve a 90% win success rate. In the event of a loss, through the compulsory ATE insurance, your capital is assured and returned to you.
  4. The final compelling reason is that whilst potential money multiple returns are similar to those seen in private equity, these are expected to be generated within a shorter time-frame: more money, less waiting for it.

 

And yes, we know some legal cases drag on and on, but IMF Bentham, headquartered in Australia (where litigation financing is a more-developed market) made 166 completed investments between 2011-17.

Of those, 136 settled before trial. That is a quick turn around for the investment.

On a side note: the nine cases backed by IMF Bentham which were resolved in 2017 yielded the business $82.9m on total investments of $43.3m, according to its annual report. Food for thought…

Email us on info@cfscapital.co.uk to hear more about our current cases available to invest in.

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