After years of steady growth, the litigation finance industry, which pools money to fund lawsuits in exchange for a piece of any resulting awards, is experiencing a slowdown. Key indicators show that it is becoming increasingly difficult to raise capital for litigation finance.
According to data provided by Westfleet Advisors, investors made $2.7 billion in new commitments to lawsuits in the fiscal year ending June 30, 2023, a reduction from $3.2 billion in fiscal year 2022. In the same period, total assets under management grew by less than 1%, reaching $15.2 billion.
Charles Agee, CEO of Westfleet Advisors, noted that many litigators discovered in 2023 that relying on a broader market could make more sense than concentrating on a relationship with a single funder. He added that larger law firms in the United States showed increased interest in the field, making up 35% of new commitments, up from 28% in 2022.
Despite the falling new dollars for litigation finance, there were positive aspects: increases in more sophisticated users and deal structures were observed. For example, portfolio structures, which involve funding bundles of cases as a strategy to hedge risk, made up two-thirds of deals. Additionally, the largest category of funded matters remained patent litigation, which accounted for 19% of commitments.
Difficult market conditions forced some firms, such as the UK-based Augusta Ventures, to downsize. Various funders also sold off portions of their assets. In fact, the level of market volatility caused a considerable number of professional staff to move away from established funders to create new firms or work in adjacent sectors like insurance.
Full details about this development in the litigation finance can be found in this Bloomberg article.