In the last decade, legal financing has transformed from a fringe sector into a substantive industry. Not only has it won over critics, but it has also become a key strategic tool for litigants and law firms, expanding at an impressive pace, and helping to create numerous employment opportunities, including a recent Head of Tax role at a leading legal finance firm.
The initial rise of legal financing can be traced back to the historical legal concepts of champerty and maintenance. This rapid advancement has been driven by robust case evaluation procedures that fund meritorious claims, with payment conditional on the lawsuit’s successful outcome. Unlike the initially feared result of promoting unnecessary litigation, this model has been widely accepted and endorsed by Biglaw firms, acting as a significant contributor to the industry’s growth.
Furthermore, the industry has outpaced projections from 2019, with assets under management surpassing the predicted $15 billion mark by 2022, three years ahead of schedule. While 2023 marked a plateau in the industry’s overall growth due to broader financial market trends, demand for legal financing services remained high as numerous firms continued to expand steady growth.
The Federal Reserve’s interest rate hikes have affected the legal financing sector, particularly segments dealing with lower-risk credit transactions or mass tort agreements. Still, these adjustments have not stymied industry progress. Legal financing continues to attract interest, often providing attractive counter-market benefits.
The worldwide acceptance and interest in legal financing have escalated, not only in terms of financial commitment but also a mounting professional engagement. The sector made major strides with the establishment of the International Legal Finance Association in 2020 and the launch of the inaugural LITFINCON event in 2022.
The relationship between the insurance sector and legal financing has also changed, with insurers recognizing a growing demand for their products within the legal financing sector, introducing products like judgment preservation insurance. This development signifies how adaptable the legal financing industry is and can align itself with broad segments like insurance.
While regulations have posed potential roadblocks to the industry’s expansive growth, most judicial decisions have only affected a narrow band of the legal financing sector. Recent pushes for greater transparency within legal finance, such as Montana’s S.B. 269 and Chief U.S. District Judge Colm Connolly’s orders, highlight an evolving and complex regulatory landscape.
As the industry matures, Lateral Link is currently recruiting for a Head of Tax for a New York-based legal finance firm. This position offers interested professionals an opportunity to work at the forefront of the legal finance industry, engaging in complex financial transactions and international tax planning.