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Key Takeaways from LFJs Special Event: How Investors Approach Litigation Finance

July 26, 2022

Key Takeaways from LFJs Special Event: How Investors Approach Litigation Finance

On Thursday, July 14th, Litigation Finance Journal hosted a digital event, “How Investors Approach Litigation Finance.” The event featured a unique cross-section of investor types, including David Gallagher, Co-Head of Litigation Investing at The D.E. Shaw Group, CJ Wei, Vice President of Private Credit at Northleaf Capital, Benjamin Blum, Managing Director at Flexpoint Ford, LLC, David Demeter, Director of Investment at Davidson College, and Kendra Corbett, Partner at Cloverlay. The event was moderated by Ed Truant, Founder of Slingshot Capital. Below are some key highlights from the discussion: ET: How did you start investing in Litigation Finance? What types of results did you focus on, and how has your strategy changed over time? DG: It takes time to obtain a meaningful number of results from litigation finance investments, and you can learn a lot along the way, even before the results come in. And because you invest in such a small proportion of the opportunities you look at, you try to learn from the investments you don’t make, as well as the investments you do make. And one of the lessons I’ve learned as it relates to deployment strategy, is that good deals are so hard to come by, and are a product of so many variables outside of your control, that it’s better to be responsive to the opportunity set in front of you, than to be wedded to the abstract ideas of portfolio construction or deal structuring. I think adaptiveness is key. KC: We’ve been active in deploying capital in litigation finance for over six years now, and I wouldn’t say our approach has changed dramatically. We’ve been laser-focused on maintaining diversification across cases to avoid binary risks, and finding alignment across all of the involved parties. I think we’ve looked for market specialists, and we haven’t necessarily tried to find litigation finance beta, and instead we’ve looked for partners with a demonstrable value-add and strategic advantage. ET:  For those panelists more interested in credit opportunities in the legal finance space, why did you decide to focus on credit? DG: At the D.E. Shaw Group, the litigation investing team works closely with the Private Credit group, which I like to think broadens the types of deals we do. So, in addition to investing in litigation finance deals with a more typical risk/reward profile, we also invest in less volatile opportunities that are less about litigation risk, and more about timing risk and basic credit risk. BB: There are a few ways to create a credit-like opportunity in litigation finance. In addition, the way David was describing, the other way is to create a credit-like product by lending against a diverse portfolio of individual case fundings. So the asset is a little bit less credit-like, but the investment structure creates a credit-like investment. Both areas are of interest to us, especially when there is strong alignment with the borrower and downside protection through underwriting, to justify accepting a return profile that is either capped or has limited upside. CW: At Northleaf, we have many different funds with many different return hurdles, so we view ourselves as a capital solutions provider to litigation finance businesses. That being said, our thesis around the asset class is akin to a type of Private Credit approach strategy. Principal protection is our priority. We not only have asset coverage of the legal assets, but additional covenants and protections, and bespoke structures where we have guardrails against any downside scenario. ET: From an equity perspective, how is litigation finance the same as, or different from, other equity assets in which you invest? DD: If you suspend disbelief a bit, I would equate it with early venture investing. Liquidity cycles tend to be uncorrelated in the long run, you’re generally creating milestones for capital, outcomes can be pretty skewed, where large winners make up the majority of profit (although it’s certainly more skewed in venture than in litigation finance), and the investment strategy isn’t all that scalable—managers have to be cognizant of all that they’re trying to deploy. DG: I’ll focus on some of the differences. First, a litigation finance investor has no control over the litigation, while an equity investor or investors that own the majority of the company—they do control the company. So the closest analogy is to a class of shares that has no voting rights. Second, LitFin investments are typically illiquid. Equity investments are typically liquid. Another difference is that case outcomes are typically more binary than business outcomes.  And one last difference is that a company you might invest in can pivot and respond as needed to market opportunities, a case you invest in—it pretty much is what it is, and there’s only so much that even the most talented lawyers can do, with the facts and the law involved. ET: One of the common criticisms I hear from fund managers, at least early on in the life cycle, is that investors are not willing to pay management fees to fund their operations. How does the panel respond to this criticism, given that the average litigation finance claim is small—around $3-5MM—and there is a lot of relatively sophisticated operations needed to be conducted by investment managers?   DD: I think there are ways of paying someone a full fee and making sure deployment is there. And that is my primary concern, and I think most LPs primary concern, when it comes to paying a management fee. We’re also concerned about misalignment. At the fund level, people should really be making a large amount of their compensation from performance fees, not salary. KC: It’s definitely a difficult issue. The fee drag that comes with charging investors on committed capital becomes pretty untenable when you’re comparing gross returns to net returns. So from our perspective, at a minimum, fees need to be on an as-committed basis. We’ve also seen scenarios where there is a lower management fee on committed capital that steps up once it’s drawn. It’s just really difficult with some of the commercial litigation strategies to have a full freight fee—2%–committed from investors.

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Commercial

Triple-I Launches Consumer Campaign Against Litigation Funding in Texas and Kentucky

The Insurance Information Institute has opened a new front in the fight over third-party litigation funding, launching a consumer-awareness campaign in Texas and Kentucky ahead of both states' 2027 legislative sessions. The push adds two more targets to a state-level reform wave in which more than 20 states have already enacted funding disclosure laws.

As reported by Insurance Business, Triple-I is framing the campaign around the transmission of litigation costs into insurance premiums. Michel Léonard, the organisation's chief economist, put the argument bluntly: "Litigation is outgrowing the economy. That gap doesn't stay in the courtroom. It lands in claims, reserves and premiums." Critics of such measures counter that disclosure mandates and funding restrictions limit access to justice for claimants who cannot otherwise afford to litigate.

Casualty pricing is the evidence Triple-I points to. While commercial property rates declined over the past year, casualty lines have stayed elevated, with umbrella and excess liability recording the sharpest increases and commercial auto under sustained pressure.

The underlying cost data comes from several Triple-I studies, including work with the U.S. Chamber Institute for Legal Reform and the Casualty Actuarial Society. U.S. tort costs reached $579.7bn in 2023, nearly double the $299.7bn recorded in 2014. Other liability accounted for $249.3bn and personal auto liability for $188.1bn. Triple-I estimates that legal system abuse added between $231.6bn and $281.2bn to liability losses across the decade to 2023.

Commercial

Proposed DIFC Arbitration Law Reforms Would Impose Express Third-Party Funding Disclosure

Dubai's financial free zone is moving toward a statutory disclosure obligation for litigation funders. The proposed 2026 reforms to the DIFC Arbitration Law—the most substantial overhaul since the statute was enacted in 2008—would introduce express disclosure requirements for third-party funding arrangements in arbitrations seated in the Dubai International Financial Centre.

As reported by SCC Online, the reforms were examined during Dubai Arbitration Week 2026, in a session on the proposed changes to the DIFC Arbitration Law and the new DIFC Mediation Law. Justice Michael Black of the DIFC Courts framed the funding provision as a measure to strengthen transparency and accountability in arbitral proceedings. The panel, moderated by Graham Lovett of the DIAC Arbitration Court, also included DIFC Courts Chief Justice Wayne Martin, DIAC Registrar Robert Stephen, and counsel from Akin.

The funding disclosure requirement sits within a broader package. Other proposed changes would cut the window for set-aside challenges from three months to 30 days on a non-extendable basis, permit summary determination of unmeritorious claims, allow peremptory orders backed by sanctions, give statutory recognition to emergency arbitrator decisions, and extend confidentiality to the existence of proceedings. A standalone Mediation Law would make mediated settlements binding and court-enforceable.

The reforms follow a DIFC consultation that ran from 11 June to 10 July 2026. Arbitration volume at the DIFC Courts underscores the stakes: the courts handled 54 arbitration matters in 2025 and 45 by early November 2026, roughly one-third of the Court of First Instance workload.

Commercial

Federal Court Removes Hellyer Metals Liquidator, Citing Failure to Pursue Litigation Funding

The Federal Court of Australia has removed the liquidator of Hellyer Metals Pty Ltd, finding a lack of independence and criticising his handling of litigation funding offers that could have financed an investigation into a disputed asset transfer.

As reported by ABC News, Justice Shaun McElwaine delivered orders and reasons on 10 November 2026 in Goshawk Mining Pty Ltd v Hellyer Metals Pty Ltd, in the matter of Hellyer Metals Pty Ltd (in liq) [2026] FCA 1676, removing Liam Bailey of O'Brien Palmer and appointing Adam Johnston in his place, with all books and records to be handed over. The judgment records that the parties behind the share transfer under scrutiny had appointed Bailey, who then retained as his solicitor the lawyer who had introduced them. He also provided a draft statutory liquidation report to directors the court described as intimately involved in the transaction, conduct the judge called "a serious error of judgement and demonstrative of a lack of independence."

The funding findings were central. Time records showed 30.35 hours of investigative work between January and May 2026, of which just 12 minutes were spent on litigation funding. From March 2026, two companies offered to discuss funding an investigation, but the court found he failed to engage meaningfully. A funding agreement was signed only after the removal proceeding had commenced, following an approach from lawyers acting for two bankrupt former directors.

Hellyer Metals entered voluntary administration in January 2026, with Bailey appointed liquidator on 22 January. Assets had been transferred to associated company Celestial Group around the time the Tasmanian government ordered the Hellyer Gold Mine temporarily shut over unpaid debts. Goshawk Mining and Saxby Capital, which obtained a Supreme Court order freezing $36.4 million, are pursuing damages exceeding $36 million. The court described the transaction as prima facie highly questionable and said removal was indeed required.