A new player has entered the litigation-finance market.
Lex Ferenda Litigation Funding, a recently launched investment firm, has held a first close for its debut fund focused on commercial litigation, according to two founders of the firm.
Lex Ferenda’s fund began raising capital in the second half of 2020, with a $100 million goal and a $250 million hard cap. As of its first close, the firm has raised “well more than half” of its target from onshore and offshore investors including pension funds, hedge funds and a multifamily office, according to Michael German, a co-founder and CIO at the firm.
“The first close exceeded its expectations, and the firm is on the way to achieve its target of $100 million,” said Chris Baildon, the other founder and COO.
The strategy of financing legal claims for profit has existed for more than two decades in the US and has attracted growing investor interest in recent years. Such investment is often high-risk, as predicting the outcome of court cases is difficult and investors may lose their money if the litigant they funded loses the case. But the possibility of earning eye-popping returns—more than 20% in some cases—still lures many investors to put their money into this asset class.
Lex Ferenda will invest in commercial litigation and domestic arbitration cases in the US, and it aims to build a portfolio of legal cases focusing on antitrust, breach of contract, post-deal disputes, business torts, insolvency, fraudulent transfer and breach of fiduciary duties, German said.
The fund anticipates making between 15 and 20 investments and is targeting deals in the range of $1 million to $10 million for each investment. It will also offer its limited partners co-investment opportunities to participate in a particular transaction.
The firm’s founding team also includes David Stickney, a partner at plaintiffs’ law firm Bernstein Litowitz Berger & Grossmann, as a managing director in underwriting and risk management. The firm’s advisory board includes former judges and litigators, including Vanessa Gilmore and Scott Mozarsky.
The fund has garnered a substantial amount of offshore interest, which has extended the fundraising process, Baildon said. The capital it has raised is divided between US and foreign investors, with the bulk of the offshore capital coming from UK-based institutional investors.
Fundraising for first-time managers that focus on a niche strategy has become more challenging since the pandemic. Financial market volatility triggered by geopolitical uncertainties and interest-rate hikes have added to the challenges.
The market for litigation finance, where investors normally take a stake in corporate legal disputes in exchange for a share of any funds recovered or awarded, has been growing in recent years.
Attracted by lucrative returns promised by GPs, even pension funds and endowments—which are considered more conservative—are increasingly looking at this asset class, which could provide sizable returns uncorrelated to the public markets volatility, Baildon said.
Featured image by Brian A Jackson/Shutterstock
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