Byline: Lucy Tobin
WE have seen a plethora of alternative investments recently from fine wine to art and racehorses. Now, a new class of investment is emerging, one that would cause Rumpole to have apoplexy: the chance to invest in multimillion-pound lawsuits.
Last week, Burford Capital was the latest firm to try to lure London investors to grab a share of the litigation lucre -- or possibly losses -- available from big corporate legal actions. It announced a [pounds sterling]200 million AIM flotation, promising to invest the money in particular legal fights in exchange for a share of any winnings.
Burford is only the second "litigation financier" to go public in the UK, after Juridica Capital Management floated on London's junior market -- but hedge funds are also sniffing around the concept, chasing higher one-off returns and the chance to diversify risk.
One example is Mayfair-based Therium Capital Management, which was set up in February 2008 by litigators John Byrne, Neil Purslow and George Brown to focus on the UK commercial litigation market, and is currently completing its fundraising. Purslow says that interest is growing.
"London is an international centre for litigation, and investment interest now is huge. If you're investing in normal equities they will move up and down with the economy, but that's not the case if you're funding a few specific cases.
"Plus from this autumn, the postrecession take-off in litigation is beginning to get rolling."
Although both listed funds focus on American lawsuits -- apparently lawyers there are more accustomed to no win, no fee arrangements and "understand the risk-reward" -- it is London that has developed as the centre of litigation financing.
Richard Fields, chief executive of Juridica, says that is simply because investors are more interested here. "English lawyers have been openly talking in the media about the need for funding as a way to open up access to justice," he says.
Fields continues: "Although that's not a driver for our commercial business model, it has made institutional investors in the UK more aware of the opportunity."
The earnings are potentially huge. According to Fields, the US litigation market is currently worth about $33 billion ([pounds sterling]24 billion), but receives only about $4 billion investment a year.
That looks set to change, however. The litigation-funding industry has been booming in the recession, fuelled both by a surge in interest in non-traditional investments, and corporate cost-cutting as clients look to save money wherever they can, including legal fights.
The funds all work in similar ways. Normally, the financier is referred to a client by lawyers, who are perhaps keen to guarantee their fee payment -- and if it takes the case on, the fund then pays part of a company's legal costs, agreeing to collect a share of any payout or settlement, typically between 10% and 45%. …