Last week, Litigation Finance Journal held a special digital event on the evolution of corporate portfolio funding. How has portfolio funding evolved over the years? Why have corporates been slow to adopt the practice? How is COVID impacting that adoption rate? And what can funders do to convince corporates that the benefits of portfolio funding outweigh any perceived drawbacks?
A panel discussion led by Ed Truant, founder of Slingshot Capital, addressed these and other questions. The panel consisted of Neil Purslow, Co-Founder of Therium Capital Management, Greg McPolin, Managing Director of Burford Capital, Patrick Molony, CEO of Litigation Capital Management, and Rebecca Berrebi, Founder and CEO of Avenue 33, LLC.
Below are some key takeaways from the discussion:
Ed: Patrick, can you provide a brief description of the corporate portfolio financing market?
Patrick: Sure. This is a part of the market where the litigation financier approaches a large sophisticated and potentially well-capitalized corporate entity, either directly or through another channel—and provides to that corporate a facility in relation to a number of disputes that corporate might have. The capital that’s applied to funding that portfolio of disputes is typically collaterally secured against the outcome of a number of disputes. And through that process, it’s provided to that corporate at a reduced price reflecting the reduced risk of capital.
And as you say, it is a part of the market that hasn’t seen a lot of attention from litigation finance, and is something I think the industry is starting to have a close look at now. It’s certainly one of the investment strategy that LCM—the company that I manage—is looking at and focusing on very closely.
Greg: The two things I’ll add are that Patrick was right in that the market for corporate portfolio financing is certainly a newer evolution of the Litigation Finance market. For Burford it’s really come into focus over the past 18 months or so. For fiscal year 2020, we noted that about 57% of the capital we committed across our portfolio went to corporations. Not that that all happened in the context of portfolios, but certainly corporates were the majority recipients of the capital that Burford committed in 2020.
That’s consistent with what I see in the market, certainly here in the US. That is an increased uptake by corporates of litigation finance, and corporate legal departments and finance professionals coming to realize, after people like Rebecca and Patrick and Neil and I have been out in the market explaining that litigation finance is just another form of corporate finance. Corporates should be looking at their legal assets, those affirmative arbitration and litigation claims as having value—as assets that can be monetized and financed.
Ed: Rebecca, through your advisory business you must come across corporations all the time who are looking for some perspective on the litigation finance market. Why do you think corporations haven’t adopted litigation finance sooner?
Rebecca: It’s a good question. I think it follows along what Greg said which is—first of all, this market in general, litigation finance, remains relatively new as compared to other types of corporate finance in the world. So I think everybody in this industry recognizes that it’s not a new industry, but still becoming more well-known. I think a large part of it is just education, right? I think a large part of it is that corporates are just beginning to recognize that this type of financing is available to them.
So there is a big hurdle in terms of education, but as Greg said, Burford for sure is funding a lot of corporates. I think and expect that that trend will probably continue as more and more corporates become more and more comfortable with the idea of Litigation Finance.
Ed: Greg, in terms of those corporates who are looking at litigation funding, what are some typical objections you might hear from corporates?
Greg: I think Rebecca made this point, which I think is massively important and that is—this is so much about education, and a mind-shift within corporate legal departments and the CFO suite to think about Litigation Finance as just another form of corporate finance. The number one objection is sort of an unseen one, just lack of awareness…status quo. Treating legal assets the way they were treated years and years ago without thinking about how to bring in Litigation Finance to begin to shift the legal department from a cost center to a profit center.
Once you get past that…you come up with the typical objections like…some companies believe, wrongly, that commercial litigation funders are behind many of the litigations that they have to defend. So they don’t feel about using capital from a litigation funder on the affirmative side.
Rebecca: I think Greg covered the bulk of what I’ve seen—the emphasis being on ‘we don’t like litigation funders because they fund the people who sue us.’ So I do think there’s a bit of a PR campaign that we as an industry should be working on. That this money is legitimate money that is compliant with all types of rules and regulations. We need to bolster the opinion of what Litigation Finance is, and the legitimacy of what it is. We in the industry know that it’s legitimate, and it’s very real and there are a lot of lawyers now who practice specifically in Litigation Finance law.
I also see one thing Greg may have alluded to, it’s hard still to learn about Litigation Funding unless you dig deep and listen to panels like this one. It’s not as mainstream as other types of financing are. So while of course we all know there’s a lot about Litigation Finance in the NYT or Wall Street Journal, it’s definitely not front page news consistently.
Ed: Neil, can you comment on the role that law firms play in the decision-making process for corporates. Are they absent or behind the scenes or front and center?
Neil: They’ll essentially play the same role litigators would in in originating single case fundings, that’s certainly true. But we’ve certainly seen law firms play a very substantial role in some of these deals. But they won’t necessary litigate because it may well be the corporate folks and the key is going to be people with senior contacts in companies that want to deliver a sort of commercial benefit to the company, and go beyond narrow legal advice. Certainly law firms do play roles, and they can play an important role in bridging the gap between the GC and CFO.
Ed: In terms of how corporates approach finding the right litigation funder, Rebecca what’s your experience—are they hiring advisors? Or relying on their law firms to run a process? Can you give us some perspective?
Rebecca: I will tell you that I think the way that I’ve heard from corporates historically have been through law firms or people reaching out to me because they are interested in taking on Litigation Finance. But just as a corporate wouldn’t make a big investment in something without having some expertise in house or going outside to find it. I find this is the same thing.
I’ve been talking to people who find me to learn how the industry works—‘who do I talk to,’ ‘how do I learn about this.’ On a less frequent basis I get calls from corporates that say ‘I’ve been approached by a funder, what do I do? Is this a good deal? What do these deals look like?’ Sometimes it’s a proactive thing, or they get approached.
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