Parabellum Capital, originally spun off from Credit Suisse 12 years prior, has closed a major transaction: a $754 million fund that ranks among the most substantial private pools ever amassed for litigation finance. This firm has allocated approximately two-thirds of this robust fund to 50 investments, a strategy aimed at generating returns through covering the cost of commercial lawsuits. However, Parabellum has opted to keep the fund’s investor profiles and backed lawsuits undisclosed.
The new fund, the largest of Parabellum’s three till now, underscores the growing popularity of the litigation finance industry as a promising source of returns independent from equity markets. As per data furnished by Westfleet Advisors, 44 funders managed a hefty $13.5 billion in US commercial litigation investments in 2022, demonstrating an upward shift of 9% from the preceding year.
Parabellum’s Chief Executive Officer and Co-founder, Howard Shams, comments on the advancing maturity of this asset class, noting savvy investors’ ability to consistently generate high yields akin to private equity outcomes through smart litigation finance investments. Meanwhile, as the more significant players like Parabellum increasingly hold sway in the litigation finance arena, some smaller competitors are reportedly fading out. This observation comes from Rebecca Berrebi, a specialist in litigation finance brokerage and consulting.
In light of the scope and scale of the funds which Parabellum manages, Berrebi holds that their mastery over fundraising is a testament to their success. Shams and Aaron Katz, Parabellum’s Chief Investment Officer, have spearheaded the commercial litigation finance business since its inception at Credit Suisse in 2006. Now, Parabellum boasts $1.45 billion in assets managed by a nimble team of 18.
Parabellum’s litigation finance fund of 2020, with an impressive $465 million in tow, resulted in 78 investments across approximately 400 to 500 cases. Shams expects the fund to wrap up its lifecycle within a year. Akin to the one preceding, Parabellum’s first fund closed at a modest $166 million, backing 55 investments spread across hundreds of cases. Interestingly, a double-digit secondary transaction dealing with partially-realized and unrealized assets from this first fund recouped the capital input and profits for the investors.
The litigation finance secondary market has observed significant growth in recent times. For instance, December saw Omni Bridgeway offload a 25% stake in a portfolio of 15 intellectual property investments to an GLS Capital Partners affiliate for $21.5 million.
While insurance markets have begun to challenge litigation finance, attracting top industry talent in the process, they can also synergize to create benefits. One such example is Parabellum’s new fund, where around 20% of the fund – about $158 million – comes bundled with an insurance guarantee, which can be employed for leverage.
Shams sums it up succinctly stating that this insurance inspires the provision of leverage. Leveraged providers, despite their unfamiliarity with evaluating litigation finances, can now confidently offer loans aided by the insurer’s financial security against losses.