Tail Risk is a term used to describe a situation that’s unlikely to happen, but would have a profound impact should it take place. The current COVID-19 pandemic certainly qualifies. The disruption caused by the Coronavirus outbreak is affecting markets around the globe, yet despite the upheaval – or perhaps because of it – Litigation Finance is thriving.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Tail Risk is a term used to describe a situation that’s unlikely to happen, but would have a profound impact should it take place. The current COVID-19 pandemic certainly qualifies. The disruption caused by the Coronavirus outbreak is affecting markets around the globe, yet despite the upheaval – or perhaps because of it – Litigation Finance is thriving.
The Star details that the world of Litigation Finance is still a solid investment—especially since it’s not correlated to other market factors. Third-party funding is not a new strategy, though it has resurged in recent years. The US market is especially active since laws regarding funding obligations are welcoming towards responsible funders. In 2013, roughly 7% of firms used third-party funding. Four years later that percentage jumped to 36%. Still, the market is wide open for funders who want to invest in single cases or portfolios.
Litigation Finance, however, requires experience and expertise to determine the viability of a given case—experience that hedge fund managers and VC firms sorely lack. That’s why many are partnering with savvy funders who are adept at weighing potential risks and returns, including the length of cases and the probability of a reward.
In the world of Litigation Finance, effective risk management—the kind that comes with years of experience–is vital.
