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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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New Jersey Appellate Court Upholds Legal Bay Funding Agreement, Rejecting Statutory Challenges

A New Jersey appeals court has upheld the enforceability of a consumer legal funding agreement, ruling that state insurance and medical-lien statutes do not limit a privately negotiated contract between a funder and an injured plaintiff.

In Viglianti v. Blue, decided July 14, 2026, the Superior Court of New Jersey, Appellate Division, affirmed a trial court's order directing that $166,382.30 in settlement proceeds be paid to Legal Bay, LLC. The New Jersey-based funder had advanced $90,000 to cover spinal-fusion surgery and related care for Michael Viglianti, who had exhausted his personal injury protection coverage after a 2020 automobile accident. Under the agreement, Legal Bay would be repaid with interest only if Viglianti recovered in his underlying suit, which later settled for $250,000.

After the settlement, Viglianti argued the agreement was unenforceable because it conflicted with New Jersey's PIP medical fee schedules (N.J.S.A. 39:6A-12 and 39:6A-4.6) and a statute capping physician and dentist liens at 25% (N.J.S.A. 2A:44-39). The panel rejected each argument, reasoning that those provisions govern claims against tortfeasors and payments by insurers — not a private agreement voluntarily entered by a represented party. The court also emphasized that the agreement paid for medical care rather than the litigation itself.

The unpublished opinion noted its limited scope, declining to assess whether the return was fair, and observed that the Legislature is weighing bills (S. 2357 / A. 2159) that would regulate and cap litigation funding agreements.

Commercial

Court of Appeal Ruling Lets 5,800 Motorists Pursue Mass Car-Finance Claim

A UK Court of Appeal decision has cleared roughly 5,800 motorists to pursue their car-finance mis-selling claims together as a single mass action, a procedural milestone expected to shape consumer litigation across England and Wales.

As reported by Claims Media, the court ruled in Angel & Ors v Black Horse Ltd that the claimants may proceed against eight major lenders through an "omnibus claim" rather than filing individual lawsuits. The dispute centers on personal contract purchase and hire purchase agreements allegedly mis-sold between 2007 and 2024.

The ruling lands amid the Financial Conduct Authority's separate £9 billion redress scheme, which offers average payouts of around £830 but has been slowed by legal challenges and is unlikely to begin before 2027. By validating the omnibus format, the decision gives consumers an alternative route to potentially higher compensation outside the regulator's process.

Barings Law, which secured the judgment after litigating since 2020, has launched a "My Free PCP Claim" service that it says guarantees clients keep 100% of their damages by absorbing costs above the defendant's fee contribution — a model designed to avoid the roughly 30% deductions common in funded or contingency arrangements. "This ruling is a step towards securing true justice for millions of drivers who were mis-sold car finance over many years," said Barings Law chairman Robert Whitehead.

Commercial

Op-Ed Casts Litigation Funding Disclosure as a National-Security Imperative

A new opinion piece argues that the opacity surrounding third-party litigation funding has become a national-security vulnerability, urging Congress to force disclosure of who is bankrolling lawsuits against American energy, manufacturing, and infrastructure.

In an op-ed for the Washington Examiner, Robert Romano, executive director of Americans for Limited Government, contends that foreign adversaries such as China and Russia can exploit litigation as a form of economic warfare — financing challenges to pipelines, data centers, defense contractors, and domestic manufacturers without ever being identified. The public, he writes, simply has no way of knowing who holds a stake in such cases.

Romano cites a December 2025 Citizens Against Lawsuit Abuse report estimating that adversarial litigation could cost the U.S. economy $54 billion in lost output and more than 450,000 jobs. He points to two measures pending in Congress — the Protecting Our Courts from Foreign Manipulation Act (H.R. 2675) and the Litigation Transparency Act (H.R. 1109) — as vehicles for mandatory disclosure.

"Transparency won't determine who wins those cases," he writes, "but it will allow judges, litigants, policymakers, and the public to understand who has a financial or political stake." Framing the reform as an "America First" priority, Romano argues that restoring confidence in the courts requires exposing the financiers behind legal challenges to domestic economic development — a stance that adds momentum to the broader disclosure debate.