Ongoing volatility in the stock markets requires investment managers to serve their clients in new ways and introduce alternative investment concepts. Litigation & arbitration has become an accepted and sought-after asset class yielding high counter-cyclical returns.
Litigation funding is a practice where a third party (investor) provides capital to a litigant to fund a commercial lawsuit in return for a share of the financial recovery from the case (settlement/award). From a class action worth £14 billion against Mastercard claiming compensation for excessive transaction fees to Black Cab drivers claiming Uber for breaching private hire rules, the third-party financing promotes access to justice. The recent record-breaking divorce case of the British-Russian billionaire Farkhad Akhmedov, who is paying £150 million to his ex-wife, was apparently financed by Burford Capital, a litigation fund. Since the inception of litigation finance, the range of funding solutions has evolved from single-case funding into portfolio finance. Litigation funding is rapidly expanding as an integral element of the contemporary English legal landscape. In 2013, seven per cent of top-level lawyers used external capital to finance commercial lawsuits, in 2020 the number increased to 55 per cent (Bloomberg Law).
Given the size of claims and cross-collateralised risks, litigation funding significantly outperformed hedge funds, ETF and equity investments in respect of return-on-invested-capital (ROIC), reports Bloomberg Law. In 2019, Harvard University committed to litigation funding, which raised the profile of the asset class. However, litigation finance has been dominated by institutional investors, such as Harvard, or hedge funds, or investment banks. London Legal Capital specialises in high-stake commercial cases with claim value over £100 million and is also uniquely placed to assist high-net-worth individuals to benefit from this highly profitable market.
The investment company was founded by top rank London-based lawyers James Hayward and Michael Green, and high profile strategy counsellor Vladimir Lyaporov, acclaimed for his valuable advice on public policy and private equity investments to UHNWIs in London, Moscow and Monaco. ‘Litigation and arbitration funding is increasingly attracting very significant amounts of investment capital from high-net-worth individuals. This type of investment is uncorrelated to stock or bond markets, and its attractiveness will only increase in a post-pandemic world’ says Vladimir. ‘For some years now, litigation funding has been endorsed by the legislatures and judiciary. The Lord Jackson Reform gave a favourable view of litigation funders and the role that they could play in promoting access to justice. As such, litigation funding is recognised as ethical investment, and apart from high returns, the funders contribute to social good. In today’s world, the ethics element is an increasing element of the wealth management industry. Also unlike most other players, London Legal Capital does not limit financing to claims that are already established and ready for court or arbitration. We consider the early stage or even “seed” funding of claims. In such cases, the book of claimants needs to be increased, the public profile of the claims raised through marketing and PR, and the legal analysis developed and advanced. These are all areas to which we can bring our expertise and resources, such that an early stage proposition is properly and efficiently worked up to an investment-grade asset’, he concludes.
London is justifiably viewed as a desirable place to litigate claims due to the English legal system, which is globally recognised as both transparent and fair. English law and procedure are consistent, importantly providing predictability of outcome whilst being sufficiently flexible to adapt quickly to new areas of commerce and technology. As well as the courts and highly trained and experienced judiciary, London also has a world-leading reputation in arbitration and finance, and is now the pre-eminent dispute settlement centre with a focus on high-value, cross-border arbitration disputes. Nowadays, legal cases have become investable grade assets and are considered a valuable element of a sophisticated investment portfolio.