Hedge Funds Continue to Be Major Investors in Legal Funding

We already know that litigation funding is growing by leaps and bounds. This industry is a little over a decade old, and by 2019, had become a global industry worth nearly $40 billion. As the reach of funding grows, more businesses are learning the ways in which legal funding can monetize existing litigation assets while sharing risk.

Bloomberg Law explains that the non-recourse nature of litigation funding leads to funders exercising exceptional due diligence when vetting cases for potential funding agreements. Even with some firms turning away 90% of funding applicants, industry growth has not slowed. One Australian funder, Omni Bridgeway, estimates that the addressable market for legal funding is $100 billion globally.

The potential for large awards is one of the main factors attracting hedge funds to Litigation Finance as an alternative investment. Profits for funders can take months or even years to realize. But when everything goes according to plan, the results are significant. Burford Capital funded the divorce case of the Ahkmedovs, a Russian oil family. Ultimately, Burford made a return of $103 million after a settlement.  

Hedge funds aren’t the only ones investing in legal funding. College endowments and sovereign wealth funds are getting in on the action. Litigation funding investment is also attractive for ESG investors, since the main byproduct of funding is increased access to justice—particularly for those who can least afford it.

Additionally, the uncorrelated nature of funding means it’s protected from the fluctuations of the market. This makes it an excellent way to diversify an investment portfolio—which has been more important than ever in the wake of COVID.

All that said, Litigation Finance is fraught with risk and unpredictable timelines. Understanding those risks before investing is essential.