Funding for litigation strongly increasing… but how to access it?
The litigation funding market has transformed since its emergence two decades ago in the US. In leading markets, such as the US and the UK it is now a mainstream asset class for investors, with Australia and Hong Kong among the jurisdictions quickly catching up.
The litigation funding market has grown 20-fold in the decade since 2009 to be worth an estimated £9bn per year globally according to our estimates, with predictions that it will double again in the next five years.
In fact, we expect considerable growth in the UK. Currently the UK counts for only 5% of the global litigation funding market, compared to 40% in the US albeit the UK is disproportionately active as a source of capital for the market.
Given the UK is home to many sophisticated law firms, including four of the top 10 global firms, there is no shortage of claims in the pipeline. At the same time, lawyers and their clients are becoming more comfortable with litigation finance.
The market is also attractive for investors. For instance, one study by Michael McDonald (assistant professor of finance at Fairford University in Connecticut) estimated “investments in litigation financing can return between 29.4% and 43.2% annually, with an average annual return of about 36%”.
That’s not bad in a world where returns across a range of assets have been driven to painful lows. The added attraction for investors is that litigation funding investment returns should be “uncorrelated”, so unlike most assets they don’t change in line with the ups and downs of the global stock markets.
So, we see a continued growth in finance available for funding litigation. The mission for ligitationfinance.io is making it easier for lawyers and funding providers to do business so everyone can benefit from this trend.
We know from our discussions with lawyers that acquiring knowledge of how funding and after-the-event (ATE) insurance policies work is hard for lawyers and often offputtingly time-consuming for smaller matters.
For instance, each funder and ATE insurance provider has its own form requiring detailed information presented in a different way on each application. This means lots of form-filling and document provision, then all-too-often it is a mystery why your claim was accepted or rejected by the Investment Committee and underwriting teams.
In fact, we often see a mismatch between lawyers’ expectations about what funders will fund, and funders’ criteria for the sorts of cases they want to invest in. The result is frustration on both sides.
This mismatch means there is a strong sense amongst litigators that funders “tyre kick”, causing them to carry out a substantial amount of work only to then have the claim rejected.
Conversely, funders see it as lawyers causing them to spend valuable due diligence time on cases which fail to meet with their investment criteria.
That is why FINLEGAL.IO has been launched. Our platform cuts down the wasted time spent on cases and helps better manage expectations.
Part of this is through having one standard form that is sent to multiple funders simultaneously so that finance options can be assessed quickly. At the same time, we also provide online explainers to help the less experienced people in your team get the process right the first-time around.
For firms with clients who are nervous about third party funding, we have devised tools that clearly set out the ROI, enabling you to get their buy-in to external funding for their case by showing them how it can de-risk and monetise their claim.
For funders, it is a win too by ensuring they not only get more relevant requests, but also that these requests are clear, accurate and well-structured so they can reach a decision with the minimum of angst.
We want to hear from lawyers and funders about what else you would like to see on this platform. Register for our BETA programme to join with others to gain early access to this ground-breaking platform prior to launch.